2011 (6) TMI 676 - Board - Companies Law

Issues Involved:
1. Illegal allotment of shares.
2. Forfeiture and sale of petitioners' shares.
3. Non-compliance with previous consent orders.
4. Non-payment of dividends.
5. Irregular appointment of directors.
6. Alleged mismanagement and diversion of funds.
7. Validity of board meetings and resolutions.
8. Allegations of oppression and mismanagement.
9. Request for restoration of parity in shareholding.
10. Validity of annual general meeting notice.

Issue-wise Detailed Analysis:

1. Illegal Allotment of Shares:
The petitioners alleged illegal allotment of 1,137 shares to respondents Nos. 6 and 15 on February 14, 2004, and 20,737 shares on October 9, 2006. The respondents contended that these issues were settled in an earlier petition (C.P. No. 9 of 2005) and are barred by res judicata. The Company Law Board (CLB) found that the allotments were made to maintain parity among shareholders and were not illegal or oppressive.

2. Forfeiture and Sale of Petitioners' Shares:
The company forfeited the petitioners' shares due to unpaid dues and sold them to 31 shareholders on April 7, 2005, at Rs. 260 per share. The petitioners argued that the forfeited shares should have been sold to them to maintain parity. The CLB upheld the forfeiture and sale, noting that the petitioners had failed to discharge their liabilities and had agreed to the terms in the consent order.

3. Non-compliance with Previous Consent Orders:
The petitioners alleged non-compliance with the consent order dated September 8, 2006, which included allotment of 9,562 shares and 944 additional shares to restore parity. The CLB found that the petitioners had not paid the consideration for the 944 shares, and thus, the company was not in breach of the consent order.

4. Non-payment of Dividends:
The petitioners claimed non-payment of dividends for the years ending March 31, 2003, 2004, and 2005. The CLB noted that the petitioners were not shareholders after April 7, 2005, and thus were not entitled to dividends declared after that date. The dividends for the year 2003-2004 were duly paid.

5. Irregular Appointment of Directors:
The petitioners challenged the appointment of respondents Nos. 3 and 4 as managing director and joint managing director, arguing that they were not appointed by the company in a general meeting. The CLB found that the appointments were made in accordance with the articles of association and were not oppressive.

6. Alleged Mismanagement and Diversion of Funds:
The petitioners alleged mismanagement and diversion of funds by respondents Nos. 3 and 4. The CLB found no evidence of mismanagement or diversion of funds and noted that the company's performance had been steady.

7. Validity of Board Meetings and Resolutions:
The petitioners argued that no notice of board meetings was given to petitioner No. 1-director and that the resolutions were invalid. The CLB found that the petitioners were present in several board meetings and had not raised objections at the time.

8. Allegations of Oppression and Mismanagement:
The petitioners alleged oppression and mismanagement by the respondents. The CLB found that the petitioners had raised similar issues in the earlier petition (C.P. No. 9 of 2005) and were estopped from raising them again. The CLB also found no evidence of oppression or mismanagement.

9. Request for Restoration of Parity in Shareholding:
The petitioners sought restoration of parity in shareholding as it was before February 14, 2004. The CLB found that the consent order had already addressed the issue of parity, and the petitioners had failed to comply with the terms of the consent order.

10. Validity of Annual General Meeting Notice:
The petitioners challenged the notice for the annual general meeting held on November 19, 2008, arguing that it did not provide 21 clear days' notice. The CLB found no merit in this contention, noting that the petitioners had received the notice and had not raised objections at the time.

Conclusion:
The CLB dismissed the petition, finding that the petitioners were estopped from raising issues already settled in the earlier petition and had failed to establish any acts of oppression or mismanagement. The CLB also imposed a cost of Rs. 25,000 on the petitioners for filing a frivolous petition. The petitioners were given the liberty to approach the CLB for the valuation of their shares and seek appropriate orders for their exit from the company.

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