Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
While some closely held Private
Limited Companies do strictly adhere to the provisions of the Companies Act,
1956, many closely held Private Companies completely ignore the provisions of
the Companies Act and these companies are often run as if those are
proprietorship concerns. There are closely held Private Limited Companies which
simply follow the advice given by the Company Secretaries and Chartered
Accountants. The promoters and the management of these companies which depend
upon the advice of the Company Secretaries and Chartered Accountants, may not
even aware of the provisions as to how to run the company, manage the company,
maintain the records and file the returns. If a Company follows the advice of
Company Secretaries and Chartered Accountants as to how to comply with the
corporate regulations, then, it is good for the shareholders, management of the
Company and the creditors dealing with the Company. However, in many closely
held Private Limited Companies, the transactions are very typical and it is
very difficult to resolve the disputes if any dispute goes to the Court or the
Company Law Board. There can be some 10 group companies run by the same family
and there can be umpteen financial dealings or the transactions among these
companies keeping some objective in mind. Again, there are family companies or
the closely held Private Limited Companies which will not record the
transactions of the Company in its Books and on the contrary, these companies
can benefit the individual shareholders in their individual names upon an
understanding.
When a family company or the
closely held Private Limited Company functions without any dispute among the
shareholders or the groups in the Company, there may not be any difficulty. The
problem starts when the trust is lost among the shareholders or the groups. It
is likely that in any business concern or the closely held Private Limited
Company, problems will come and the shareholders or the group start questioning
others and there can be fears that their interests in the company is being
oppressed. The Company’s property might have been registered in the name of an
individual shareholder who is part of the management of the Company. The other
shareholders or the people in the management might be silent at that time and
the understanding to share the interests of the Company gradually may appear
well for some time. But, if the problem starts and if the shareholder or other
group intends to question a particular transaction and expresses the concern in
the rights of the Company and the due management of the Company, then, the
Court or the Company Law Board may not accept such a contention.
In most of the cases of
Oppression and Mismanagement under section 397/398 of the Companies Act, 1956,
there can be allegations against the transactions of the Company in the past.
The Company Law Board may consider all the transactions, may look into equity
at times, but, may not be able to set-aside an illegal transaction entered into
between the Company and the Shareholder or between the Company and the
outsider. The Company Law Board will look into the whole background of the
transactions of the Company, the background of a particular sale transaction,
the knowledge of the transaction, the financial statements of the Company and
especially will consider the bonafides of the person or the group of
shareholders raising the issue in a petition under section 397/398 of Companies
Act, 1956.
Case-study:
In a typical case, the Company
was silent about a transaction infavour of an individual happened some 15 years
ago and the Company tried to question the past transaction in a petition under
section 397/398 of the Companies Act, 1956. The Company Law Board has ruled
infavour of the Company challenging the transaction occurred about some 15
years ago and an appeal was filed to the High Court under section 10 (F) of the
Companies Act, 1956. After noting all the facts and analyzing the legal
position under section 397, 398 and section 402 of the Companies Act, 1956, the
High Court has set-aside the order of the Company Law Board relying on the
knowledge and the issue of bonafides. The relevant observations of the Madras
High Court are as follows:
Madras High Court in Comp. Appeal
No.24 of 2009 between T. Vinayaka Perumal Vs. T. Balan & Others (CDJ 2011
MHC 2868):
“30. This proposition again
cannot be disputed. In the present case, admittedly, sale deed was executed in
favour of the 6th respondent in the year 1989, while purchasing the land on
behalf of the company. The property was mortgaged by the 6th respondent in his
individual capacity. The parties also came to know about the property being in
the name of the 6th respondent, when the suit was filed and got settled by the
6th respondent, by redeeming the property. Therefore, it was not open to the
company to challenge the sale, that too, in the Company Law Board, after lapse
of 15 years. It seems that the object of moving the Company Law Board was, that
the respondents 1 to 4 thought that the civil suit for claiming the property
would not be competent, as the property not only was registered in the name of
6th respondent, but he acted as the absolute owner thereof throughout all these
years, to the knowledge of the company and other Directors and members of the company.
39. The Company Law Board failed
to notice that the material placed on record showed that the respondents 1 to 4
was estopped by their conduct to challenge the sale, as they permitted the 6th
respondent to mortgage the property as collateral security by projecting him to
be the owner. Even in the suit filed in the year 1995, the 6th respondent was
shown to be the owner of the property mortgaged to the Bank, but no steps were
taken by the respondents 1 to 4 to seek remedy of getting the sale set aside in
favour of the 6th respondent.”
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
