ORDER
S. Balasubramanian, Chairman
1. The petitioners holding 2.31% shares but constituting more than 10% of the total membership of M/S Vee Kay Oils Private Limited have filed this petition under Sections 397/398 of the Companies Act, with the allegation that the Board of Directors has taken a decision which ultravires the Memorandum of the company and as such the same should be declared as null and void.
2. According to the petitioners, the daughters of the 2nd and 3rd respondents have floated a separate company in the name of Superana Oils & General Mills Limited which has entered into an agreement with IDBI for equity participation with an understanding that after expiry of 5 years of the additional units coming into operation, the 1st respondent company would purchase the shares held by IDBI, The respondent No. 1 company was also to provide corporate guarantees for the term loan to be availed of by M/S Superana Oils. In a Board meeting held on 8.11.2004, the 2nd and 3rd respondents in their capacity as directors of the 1st respondent company passed a resolution to agree to buy back of the shares from IDBI and also to furnish corporate guarantees. The 1st respondent company is a highly indebted company and therefore the decision of the Board to support the company owned by their relations without the approval of the general body is completely against the interest of the company. Further, the object clauses in the Memorandum do not empower the company either to buy back the shares or provide corporate guarantees. Further, in terms of Section 370 of the Companies Act, 1956, the Board should have obtained the consent of the general body which the company has failed to do. In spite of the protests by the petitioners, the Board had refused to cancel their decisions and as such the petitioners have filed this petition seeking for cancellation of the decisions taken in the Board meeting as impugned in the petition on 8.7.2004.
3. In the reply, the respondents, while admitting that the factum of M/S Suprana Oils being controlled by the daughters of 2nd and 3rd respondents and passing of the resolutions on 8.11.2004, have denied that either buy back of the shares or giving corporate guarantees would be against the interest of the 1st respondent company. They have also denied that the Board had acted ultravires the Memorandum of the company or that approval under Section 390 of the Act is required.
4. The learned Counsel appearing for the petitioners while reiterating the averments made in the petition referred to the various clauses in the Memorandum and also the Act and pointed out that the Board is not competent either to agree for buy back of shares or give corporate guarantees. Further, referring to the annual report for the year ended 31st March, 2004, he pointed out that the 1st respondent company has been incurring losses and its net worth is negative and as such these decisions would adversely affect the interest of the company.
5. Shri Ralla, Advocate appearing for the respondents submitted that the financial worth of the company has been assessed by IDBI and thereafter only agreed to enter into equity 5 lakh agreement and even to accept the corporate guarantees. Therefore, to contend that the financial health of the company is bad is not correct. As far as the contention of the petitioners that the Board has no powers to enter into said agreement either in terms of the Memorandum or the Articles is not correct. The Board has ample powers to take such a decision.
6. I have considered the pleadings and arguments of the counsel. The only allegation in the petition relates to the Board resolution dated 8th November, 2004. It is a settled law that to invoke the provisions of Sections 397/398 of the Act, there should be continuous course of acts of oppression and/or mismanagement. A petition under Sections 397/398 cannot be maintained on a solitary instance of either alleged oppression and/or mismanagement and as such I dismiss the petition without going into the merits of the case. The petitioners are at liberty to take any other legal proceeding as may be advised.