YOGESHWARI KUMARI Vs. LAKE SHORE PALACE

JUDGEMENT

(1.) The petitioners, having 25% shares in Ms Lake Shore Palace Hotels Pvt.Ltd. have filed present Company Petition No.32/2005 before the Company Law Board (for short "CLB"), Principal Seat, New Delhi under Section 397/398 of the Companies Act and prayed that (a) the Board of Directors of the respondent-Company be superseded and an Administrator and/or Receiver and/or Special Officer be appointed to forthwith take over the management and administration of the respondent company on such terms as the Board may deem just and proper,(b) if necessary, a scheme of management be framed for running the management and administration of the company on such terms as the CLB may deem just and proper and (c) the Board of Directors of the Company be reconstituted. The petitioners further sought declaration that the business conducted at and/or the proceedings of the meetings of the Board of Directors attended by respondent no.3 are bad in law in view of the Department's Circular No.14/51/62-PR and as such, the same cannot be acted upon and/or implemented. In addition to above reliefs, the petitioners prayed for (a) injunction restraining the respondents from issuing any shares or from increasing either the authorised or paid up share capital of the Company, (b) injunction restraining the respondents and each of them from dealing with or disposing of or alienating or encumbering or transferring any of the assets of the company in any manner whatsoever and (c) permanent injunction restraining the respondents and each of them from expending any funds of the company in any manner whatsoever including for the purpose of contesting the present proceedings. The petitioners then prayed for direction for an independent audit of the accounts of the respondent-company.

(2.) It will be appropriate to mention here that the appellants (Company petitioner No.1) earlier preferred S.B.Company Petition No.1/1991 under Section 397/398 of the Companies Act, 1956 before the Rajasthan High Court in the year 1991 with the allegations and on the grounds that respondent no.2, the real brother of the petitioner and appellant no.1 was having 10% shareholding in the respondent-Company in the year 1984 and was able to increase his share holding in the respondent-Company to 56%. The respondent no.2 also controls another 23% of the shareholding in the respondent-Company belonging to the Estate of Maharana Bhagwat Singh of Mewar(father of appellant no.1 and respondent no.2), which he controls as an Executor of the Trust created by Maharana Bhagwat Singh which is Maharana Mewar Institution Trust. According to the petitioners-appellants, respondent no.2 attempted to oust the petitioners from the management and control of the respondent-Company and, therefore, prayed in the the Company Petition No.1/1991 that:-

(3.) The CLB by its order dated 4.12.2007, after holding that the petitioners failed to establish that there is financial mismanagement in the Company and the Board has no jurisdiction to remove Shri Unni, the Director of the Company, as his appointment was on account of consent terms approved by the High Court in earlier round of litigation between the parties and considering the financial position of the company, it does require funds to carry out renovations. The CLB rejected the allegations of the petitioners that the full project details for the investment to be made had not been disclosed and instead of projects, the one sheet project report reflects only renovation and that the estimates are overstated etc. and held that the objections are mostly technical. The CLB observed that the CLB does not found either in the pleadings or during the arguments that the renovations proposed in the project report are unnecessary or unwarranted and in a hotel, upgradation of the facilities and also constant renovation is a standard practice. The CLB from the accounts of the Company found that there was an addition to the fixed assets of a sum of about Rs. 40 lacs in 2002-03 and about Rs.85 lacs in the year 2003-04. Even after finding the need for the funds for the company genuine, the CLB examined whether the Company was justified in raising the funds and the only source was by way of issue of right shares and whether in terms of the agreement entered into between the parties and submitted before the High Court in the earlier round of litigation, whether there could be no issue of further shares and that share-holdings should remain, all times to come, as it stood after the agreement before the High Court. The CLB held that any attempt to disturb the percentage of shareholding, without the consent of the petitioner, could be an act of oppression. The CLB held that forcing the shareholder to invest such a substantial amount of money without any returns only to maintain their percentage shareholding is harsh, burdensome and therefore, is definitely oppressive.