BEFORE THE COMPANY LAW BOARD, PRINCIPAL BENCH 

Appearances : M. C. Mehta for the Petitioner. 

U. P. Mathur & D. D. Pande for the Respondents. 

ORDER 

BALASUBRAMANIAN, ACTING CHAIRMAN 

1. The petitioner holding 25,100 shares out of the 2,50,000 subscribed shares in Eagle Cones (P.) Ltd. ('the company') has filed this petition under section 397/section 398 of the Companies Act, 1956 ('the Act') alleging acts of oppression and mismanagement in the affairs of the company. This company was incorporated in December 1994, the principal promoter being one, Shri Y. K. Agarwal, who expired on 17th June, 1998. At the time of incorporation, the Board consisted of the said Y. K. Agarwal, the petitioner and Shrimati Shashi Dhandhania. The 3rd respondent being the son of Shri Y. K. Agarwal was appointed as a director on 24th April, 1996. After the death of Shri Agarwal, in a Board meeting held on 20th June, 1998, the 2nd respondent was appointed as an additional director-cum-managing director. The 4th respondent being the, wife of the deceased was appointed as an additional director on 6th July, 1998 and she later resigned on 23rd February, 1999. The grievance of the petitioner is that after the family members of the deceased gained majority on the Board, she is being sidelined, she is not being given inspection of the records of the company, she is not getting notices for the Board meetings and that the bank accounts of the company are being independently operated by the respondents even though she is one of the signatories and that due to mismanagement in the affairs of the company, the company has closed its business and proceedings have been initiated in the Debts Recovery Tribunal for recovery of loans given to the company. 

2. Shri Mehta, advocate for the petitioner, submitted that after the death of Shri Agarwal, the family members have taken over the company and are completely sidelining the non-family directors. Even though in the Board meeting held on 20th June, 1998, the petitioner was designated as a joint signatory along with the 2nd respondent, to operate the bank account, later, in a Board meeting held on 22nd July, 1998 in which the petitioner was not present, 3rd respondent also was designated as a joint signatory by which bank transactions could be operated by any of the two directors. Even though, the petitioner continues to be a joint signatory, yet, the two other signatories have been operating the accounts of the company without associating the petitioner who has given personal guarantee to the bank. This according to the learned counsel is a grave act of oppression against the promoter shareholder director. He also submitted that even though the petitioner repeatedly asked for inspection of the records of the company, yet, no such inspection has been offered by the respondent. In spite of the petitioner having deposited a sum of Rs.250 with a request for sending all communications to her by registered post, yet, no notice for any of the Board meetings or for general body meetings are being, received by her. It is through the auditors of the company that she came to know that the Board had already adopted the audited accounts for the year ending 31st March, 1998 and the petitioner did not receive any notice for this Board meeting wherein the audited accounts were adopted. He also submitted that for the annual general meeting ('AGM') to be held on 5th December, 1998, the petitioner had moved certain resolutions under section 188, section 255 and section 257 but none of these resolutions was considered in the AGM and the 2nd respondent unilaterally decided that the meeting had come to an end. Further, he submitted that the respondents have started disposing of various assets of the company notwithstanding the fact that they were hypothecated/mortgaged to Canara Bank against the loan given by the said bank. Accordingly, he submitted that the affairs of the company are being conducted in a manner prejudicial to the interest of the shareholders and the company and as such prayed for various reliefs, inter alia, including declaration that the proceedings in the AGM held on 5th December, 1998 as null and void, removal of the respondents from the directorship of the company, directing the respondents to take part in the affairs of the company as was prevailing before the death of Shri Agarwal, restraining the respondents from disposing of the assets of the company without proper Board approval. 

3. Shri U. P. Mathur, advocate appearing for the respondents, submitted that the petitioner holds just about 10 per cent shares in the company and that the petition is motivated on account of the company deciding to dispose of a Maruti Zen which was being used by her extensively for her personal purposes. He further submitted that all the respondents except the 3rd respondent became directors of the company only in the middle of 1998 and this petition has been filed within six months thereafter while the petitioner has been a director right from the incorporation of the company. Therefore, if at all there is any mismanagement, as alleged in the petition, then, she alone is squarely responsible for such mismanagement. He also submitted she became a joint signatory for the first time only in June 1998 and since she was not attending the office, it was difficult to associate her with the bank operations and accordingly one more joint signatory was approved by the Board. He also submitted that the company never refused inspection of the records of the company and she is at liberty to carry out the inspection at any time she desires. He also submitted that the company has been incurring losses right from the beginning and in view of the petitioner having stopped the bank operations by writing letter to the bank, no bank finance is forthcoming and now the bank has initiated proceedings before the Debts Recovery Tribunal and the company now stands closed. He finally submitted that the petitioner has not made out a case for oppression and mismanagement in the affairs of the company and that the petition should be dismissed. 

4. We have considered the pleadings and arguments of the counsel. Admittedly, in this case, the family members of Shri Agarwal hold more than 75 per cent shares in the company and it is with the consent of the petitioner that family members were inducted into the Board of the company. For the first time she became a joint signatory in June 1998 even though she had been a director right from 1994. There is nothing on record to show as to on how many occasions she was involved in operation of the bank accounts from June 1998 to July 1998 when one more signatory was added. Anyway it is on record that she precipitated the entire matter by complaining the bank vide her letter dated 17th August, 1998, and again by another letter dated 28th August, 1998, which according to the respondents resulted in the bank operations coming to a standstill. This matter should have been settled in the domestic forum. Instead the action of the petitioner has affected the interests of the company. Since the decision relating to operation of the bank account which anyway the petitioner did not have authority to do nearly for 4 years till June 1998, is completely within the domain of the Board, we do not propose to intervene on behalf of the petitioner. Anyway, since the business of the company has already been closed and the proceedings are pending before the Debt Recovery Tribunal, there may not be any need for bank operations. In regard to other complaints, we direct the company to offer. inspection of all the records of the company which the petitioner is entitled as a director as well as a shareholder 'Within 15 days from the date of receipt of a requisition from her and we also direct the company that for all Board meetings and general body meetings, registered notices will be given to her with not less than 7 days clear notice. We find there is a complaint that share certificates have not been given to the petitioner while the company asserts that share certificates have been issued during the life time of Shri Agarwal. In case the petitioner desires to have duplicate share certificates, the same should be issued to her after following the usual formalities. In view of the strained relationship, the respondents may consider purchasing the shares of the petitioner, if she is willing to sell the shares. However, we are not giving any direction in this regard in view of the present position of the company. 

5. With the above observations, the petition is disposed of. No order as to cost.