2009 (7) TMI 788 - HC - Companies Law

Company Law Board order challenged - Held that - The question as to whether notice was sent to the Central Government by the Company Law is a question of fact and the same cannot be looked into at this stage in an appeal, where fact finding enquiry is not permitted. Having held that the appellants have miserably failed to establish issuance of proper notice and service of notice with regard to holding of the Board meetings, this Court does not deem it necessary now to go into the question of records of the Board meeting not being produced in the proceedings before the Company Law Board and in this appeal but sees no error in the finding recorded by the Company Law Board in this regard. As the question of allotment of shares is also done without proper notice to the company petitioner, the finding recorded by the learned Company Law Board with regard to allocation of shares also does not warrant any interference. For the purpose of allocation of shares, it is alleged that the offer was made on 30-4-2003 and in this offer it is indicated that the appellants have decided to allocate the share in its meeting held on 28-5-2005. Service of notice with regard to this meeting is also in the same manner as discussed hereinabove and, therefore, it is not established that the notice is served. That apart, it is clear that the decision with regard to allocation of shares took place on 5-7-2005. If the decision was taken on 5-7-2005, then the respondent who was arrested on 1-7-2005 should have been informed about the same. This was not done. The learned Company Law Board has dealt with this matter in detail, in Paragraphs 14 and 15 of its order, and this Court does not see any perversity or error in the aforesaid finding of the Company Law Board, warranting interference. Considering the totality of the facts and circumstances, this Court is of the considered view that in passing the impugned order the Company Law Board has not committed any error, which warrants interference now in this appeal.

Issues Involved:
1. Deemed cessation as Director under Section 283(1)(g) of the Companies Act, 1956.
2. Allegations of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956.
3. Improper allocation of further shares reducing the respondent's shareholding.
4. Service of notice for Board meetings.
5. Compliance with Section 400 of the Companies Act, 1956 regarding notice to the Central Government.

Detailed Analysis:

1. Deemed Cessation as Director under Section 283(1)(g):
The respondent was deemed to have ceased as a Director effective from 31-1-2005 under Section 283(1)(g) of the Companies Act, 1956, due to his absence from five consecutive Board meetings. The Company Law Board (CLB) found that the meetings were held without proper notice to the respondent, and notices sent by Under Postal Certificate (UPC) were not adequately proved. The High Court upheld this finding, emphasizing that mere production of UPCs is not conclusive proof of service. The appellants failed to provide corroborative evidence like dispatch registers or affidavits from the person who dispatched the notices.

2. Allegations of Oppression and Mismanagement:
The respondent alleged that his removal as Director and the subsequent reduction of his shareholding were acts of oppression and mismanagement. The CLB found merit in these allegations, particularly noting that the reduction in shareholding was done without proper notice and during a period when the respondent was in jail. The High Court agreed with the CLB's findings and held that the actions taken against the respondent were without proper notice and therefore invalid.

3. Improper Allocation of Further Shares:
The respondent's shareholding was reduced from 25% to 10% due to the issuance of additional shares without proper notice. The CLB found that the allocation of further shares was done without informing the respondent, which was detrimental to his interests. The High Court upheld this finding, noting that the decision to allocate shares was made in a meeting held on 5-7-2005, when the respondent was already in jail, and proper notice was not served.

4. Service of Notice for Board Meetings:
The appellants claimed that notices for the Board meetings were sent by UPC and personally served. However, the CLB found that the service of notice by UPC was not adequately proved, as there was no corroborative evidence like dispatch registers or accounts showing postage expenses. The personal service by an employee, Shri Rajesh Tadas, was also found to be insufficiently proved due to lack of specific details in his affidavit. The High Court agreed, emphasizing that proper service of notice is crucial for the validity of Board meetings and subsequent decisions.

5. Compliance with Section 400 of the Companies Act, 1956:
The appellants argued that the CLB failed to comply with Section 400, which requires notice to be given to the Central Government in cases under Sections 397 and 398. The High Court noted that this compliance is the responsibility of the CLB and that the company petitioner should not suffer for any non-compliance by the CLB. The Court found no indication that non-compliance with Section 400 rendered the proceedings null and void.

Conclusion:
The High Court dismissed the appeal, upholding the CLB's order to restore the respondent to his original position as Director and his original shareholding. The Court found that the appellants failed to prove proper service of notice for Board meetings and that the actions taken against the respondent were without proper notice, thereby constituting acts of oppression and mismanagement. The compliance issue with Section 400 was deemed not fatal to the proceedings.

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