C.P. No. 34 of 1998. Case: Vinod Kumar Mittal Vs Kaveri Lime Industries Ltd. and Ors.. Company Law Board

Case NumberC.P. No. 34 of 1998
CounselFor Appellant: U.P. Mathur and D.D. Pande, Advs. and For Respondents: P.K. Mittal, Adv.
JudgesA.K. Banerji, J. (Chairman) and S. Balasubramanian, Vice-Chairman
IssueCompanies Act, 1956 - Sections 283(1), 397 and 398 - Schedule - Article 40
Citation[2000] 100 CompCas 66 (CLB)
Judgement DateOctober 11, 1999
CourtCompany Law Board


S. Balasubramanian, Vice-Chairman

  1. In this petition filed under Section 397/398 of the Companies Act, 1956 ("the Act"), by the petitioner claiming to hold 14.64 per cent, shares, alleging acts of oppression and mismanagement in the affairs of Kaveri Lime Industries Limited ("the company"), the main allegations are that he had been illegally removed as the managing director of the company, that further issues of shares have been made with a view to increase the shareholding of the respondents and that the second respondent is guilty of siphoning off funds of the company.

  2. U. P. Mathur, advocate for the petitioner, initiating the arguments submitted that the company is a family company and that the petitioner is the elder brother of the second respondent and that both of them were the first directors not liable for retirement by rotation. The petitioner together with members of his group held 25.45 per cent, shares in the company and the second respondent with members of his group held 59.55 per cent. shares. According to him, the petitioner had been the managing director of the company right from incorporation of the company in 1987, and in breach of mutual confidence and trust, the second respondent started sidelining the petitioner from exercising his powers as the managing director. With a view to completely excluding the petitioner from the company, the second respondent removed all the records of the company kept in the house of the petitioner which was originally the registered office of the company to his own house. From a legal notice issued by Union Bank of India to the directors of the company, the petitioner noticed that four new directors had been appointed without any authority of the board or general body. The respondents, in their reply, have averred that in an extraordinary general meeting held on February 28, 1998, the petitioner was removed as the managing director and that four new directors were appointed. Mathur submitted that the petitioner never received any notice for the extraordinary general meeting nor the notice for the board meeting in which the decision to convene the extraordinary general meeting was taken. According to him, the provisions of Section 284 had not been followed in removing the petitioner as the managing director and since the petitioner is named as a permanent director in the articles of association of the company, he could have never been removed. He also pointed out that as per the loan agreement with the financial institutions, the petitioner could not have been removed without the consent of these financial institutions but without getting their approval, the petitioner had been removed as the managing director. Since the company is a closely held family company wherein the participation of the family members in the management of the company has been provided in the articles itself, the removal of the petitioner as the managing director is a grave act of oppression. He also pointed out that the respondents have not produced any evidence that notice was issued to the petitioner for the extraordinary general meeting. He also submitted that many of the shareholders whose affidavits have been filed along with the rejoinder have also averred that they had not received the notice for the extraordinary general meeting. He submitted that in the absence of notice to all the shareholders, the extraordinary general meeting could not be held to be a valid meeting and as such should be declared as null and void. He further submitted that from the reply filed it is seen that in the said extraordinary general meeting, the company had taken a decision to allot 4,445 shares which if allotted would upset the entire shareholding pattern of the company especially when the respondents have not established any justification for issue of further shares. He further stated that in the same meeting four new directors were reportedly appointed without any justification. Referring to item No. 6 of the minutes of the extraordinary general meeting, he pointed out that article 95 of the company has been amended to provide for appointment of fifteen directors which is in violation of the provisions of Section 259, according to which not more than twelve directors could be appointed to the board of a company without the prior approval of the Central Government. He further submitted that while the second respondent has been strengthening his hands by appointing his own directors, two sons of the petitioner who were on the board, are reported to have vacated the office of director in terms of Section 283(1)(g) of the Act. He submitted that the respondents have not given any details regarding the dates of the board meetings, which these directors did not attend, for the purpose of invoking the provisions of Section 283(l)(g).

  3. He further stated that besides the above acts of oppression, the second respondent is guilty of mismanaging the affairs of the company including siphoning off funds of the company. As per Section 215 of the Act, the balance-sheet of a company has to be signed by the managing director, if any. However, without observing this statutory requirement by requiring the petitioner to sign the balance sheet, the same for the year ended March 31, 1997, was signed by two other directors. Therefore, the adoption of the...

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