Companies Act_practical problems_12

The group of requisite shareholders under Section 399 filed a petition before the Company Law Board for relief against oppression. Meanwhile, a secured creditor filed a civil suit for winding up for non-payment of his debt. The shareholders contended that winding up proceeding should not be heard as the Company Law Board is seized of the petition under Section 397. Is there contention tenable?
What would be your answer, if in the said situation a composite petition (petition praying for relief against oppression as well petition for winding up) is filed in the Court of Law?

In A.K. Puri vs. Devi Dass Gopal Kishan Ltd., (995) 17CLA, the J&K High Court held that there was no conflict of jurisdiction with respect to Sections 397, 398 and Section 433. The court observed that there is no statutory provisions in the Companies Act which provides for stay of the winding up proceedings under Section 433 when the CLB was seized of a petition between the same parties under Section 397/398. In other words, there is neither explicit nor implicit to carry on the winding up proceedings even when the CLB was seized of the matter.

The question whether shareholders can file a writ petition for relief against oppression and mismanagement during pendency of proceedings before the CLB, the Supreme Court in World-wide Agencies Pvt. Ltd., vs. Mrs. M.T. Desor (1990) 67 CC. 607 held against such filing as a shareholder cannot be allowed to bypass the express provisions of the Companies Act.

Winding up petition as a creditor on ground of inability to pay debts is not a bar to admission of a composite petition under Section 397 and 398 by the same party in the capacity of a member.

Companies Act_practical problems_11

Mr. Agent having ‘substantial interest’ in ABC Ltd is appointed as a Sole selling agent by the Board of Directors for a period of 5 years. The company’s paid-up share capital is Rs.49 crores. The Board did not place the matter in the AGM and communicated to Mr. Agent about his appointment, who in turn accepted the offer. Examining the provisions of the Companies Act, 1956,
(a) Whether the appointment is in order?
(b) What course of action you would take as the Secretary of the company, in case Mr. Agent does not have substantial interest?

(i) the appointment of J is not in order, as there have been a number of violation on the part of the company as per the Companies Act, 1956. Appointment without the approval of the general meeting and without the approval of the Central Government is not valid since the company’s paid-up share capital is more than Rs.50 lakhs in this case. Moreover, since J has substantial interest in the company, approval of Central Government in Form 1 is must. Thus, the appointment of J is not in order.

In the second question (ii), the answer would not be different, as the capital (paid-up share capital) is more than 50 lakhs Rupees. In this case though the appointee (J) does not have substantial interest, but the company’s paid share capital is more than 50 lakhs, consent of the company in general meeting (special resolution) and the approval of the Central Government is required.