HON’BLE SRI JUSTICE K. LAKSHMAN COMPANY APPEAL No.14 OF 2014

JUDGMENT

Heard Dr. P. Bhaskara Mohan, learned counsel for the appellant, Mr. Vikram Pooserla, learned Senior counsel, representing Mr. Malipeddi Abhinay Reddy, learned counsel appearing for respondent No.1, Mr. N. Jeevan Kumar, learned counsel appearing for respondent Nos.2 and 3 and Mr. Maneesh Mahinwith, learned counsel appearing for respondent No.9. There is no representation on behalf of respondent Nos.4, 6, 8, 10 to 17. Notice served on respondent No.5 returned un-served with an endorsement ‘addressee left’.

2. The present appeal is filed under Section 10F of the Companies Act, 1956 (hereinafter referred to as ‘the Act’) challenging the order dated 24.02.2012 passed by the Company Law Board (herein after ‘CLB’), Additional Principal Bench, Chennai, in Company Petition No. 19 of 2008 filed by the appellant herein, who is the founder-Director of respondent No.1 Company, under Sections 397 and 398 of the Act, seeking relief against alleged acts of oppression and mismanagement by respondents Nos.2 to 7.

3. FACTS OF THE CASE i) The appellant, a founder director of M/s. Nectar Laboratories Limited (herein after Company), instituted Company Petition No. 19 of 2008 before the CLB under Sections 397 and 398 of the Act, alleging acts of oppression and mismanagement on the part of respondents Nos. 2 to 7. Allegedly majority group led by respondent No. 2 systematically excluded the appellant from the management of the company, diverted funds, and misappropriated proprietary technology. According to the appellant, notices for Board meetings were deliberately issued belatedly or post-facto, thereby denying him participation, and resolutions were passed in his absence to establish complete dominance by respondent No. 2 and his family members.

ii) It was further alleged that respondent No. 2, along with his family, floated a parallel partnership firm SAS, which was used as a vehicle to siphon off the assets of the company and clandestinely transfer its proprietary technology to respondent No. 9 through a Memorandum of Understanding dated 10.05.2001. The consideration received for such transfer was stated to have been diverted into the personal account of respondent No. 2, causing unlawful enrichment and prejudice to the shareholders. The appellant also contended that the respondents had undertaken an illegal increase in paid-up share capital from Rs. 2.5 crores to Rs. 3.07 crores without convening a general meeting or giving notice to shareholders, thereby diluting his shareholding. He was further purportedly removed from the Board under Section 283(1)(g) of the Act on the false pretext of absence from three consecutive Board meetings, despite his actual attendance, which removal was alleged to be in contravention of the interim order of the CLB dated

30.05.2008 directing the parties to maintain status quo.

iii) Upon consideration of the pleadings and material on record, the CLB, by order dated 24.02.2012, dismissed the petition and held that there was no oppression and mismanagement done by the respondents furtherthe CLB also recorded that the original license for the know-how had been granted to respondent No. 2 personally by the IICT in 1994, prior to the incorporation of the company, and that subsequent sublicensing arrangements through SAS could not be held illegal. It further held that the amounts received from respondent No. 9 had been deposited into the company’s accounts and applied towards discharge of debts, and that allegations of siphoning of funds or mala fide intent had not been substantiated.

iv) Aggrieved thereby, the appellant has preferred the present appeal under Section 10F of the Act, contending that the CLB failed to consider material evidence, particularly the audit report prepared by M/s. Y. Raghuram & Co., Chartered Accountants, which disclosed financial irregularities, statutory violations, and non-production of records by the respondents,And clear proof