This case involves the application of the Companies Act to address disputes between shareholder-directors and protect the interests of a company from potential harm. One of the two shareholder-directors of the company sought leave to initiate a derivative action on behalf of the company against the other shareholder-director. The miscreant director, acting against the company’s interest, withheld payments due to the company from another entity, Sutera Matra (SM), which he controlled. Upon learning of the derivative action application, the miscreant director threatened to file a winding-up petition, citing an irretrievable breakdown of mutual trust and confidence in managing the company.
The co-director responded by filing for a Fortuna injunction under the Companies Act to restrain the miscreant director from presenting the winding-up petition.
Issues Raised:
- Whether the threatened winding-up petition constituted an abuse of court process under the Companies Act, with no chance of success but capable of causing irreparable harm to the company as a going concern.
- Whether the winding-up threat was bona fide or served the ulterior purpose of preventing the company from recovering its dues from Sutera Matra.
Held:
The High Court allowed the interim Fortuna injunction under the Companies Act based on the following findings:
- Abuse of Process: The proposed winding-up petition had no reasonable prospect of success and would irreparably harm the company’s status as a going concern. The court emphasized that the company was profitable and its dissolution would serve only the miscreant director’s ulterior motives.
- Conflict of Interest: The miscreant director, holding dual roles as a director in both the company and Sutera Matra, was in clear conflict of interest. His actions to withhold dues were detrimental to the company’s operations and contrary to the spirit of the Companies Act.
- Bad Faith and Lack of Equity: The director did not act bona fide and came to court with unclean hands. His attempt to invoke equitable jurisdiction to wind up the company lacked legitimacy under the Companies Act framework.
- Premature Claims of Breakdown: The court found no sufficient grounds to conclude that the relationship between the directors had irretrievably broken down, rendering a winding-up premature and unjustified.
This case underscores the importance of adhering to the Companies Act in protecting a company’s interests and maintaining equitable conduct among its shareholders and directors.
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