2010 (10) TMI 923 - Board - Companies Law

Issues Involved
1. Alleged oppression and mismanagement under sections 397, 398, and 237(b) read with sections 399, 402, and 403 of the Companies Act, 1956.
2. Legality of the petitioner's removal as a director.
3. Allegations of financial misappropriation and mismanagement.
4. Denial of access to company records.
5. Validity of board resolutions and meetings.
6. Equitable relief and valuation of shares.

Detailed Analysis

1. Alleged Oppression and Mismanagement:
The petitioner alleged oppression and mismanagement in the affairs of the company, including financial misappropriation, non-declaration of dividends, and denial of access to company records. The petitioner sought relief under sections 397, 398, and 237(b) read with sections 399, 402, and 403 of the Companies Act, 1956. The court noted that the respondents failed to controvert the petitioner's allegations of contradictions and illegality in his removal/cessation as a director, as well as the allegations regarding mismanagement and misuse of company assets.

2. Legality of the Petitioner's Removal as a Director:
The petitioner contended that his removal as a director was abrupt and illegal, violating the company's articles of association. The court observed that the petitioner was removed by a resolution passed on April 26, 2004, but the reasons for his removal were inconsistent and contradictory. The court found that the removal did not comply with the company's articles, which required the approval of the Directorate General of Resettlement. Thus, the removal was deemed illegal and null and void.

3. Allegations of Financial Misappropriation and Mismanagement:
The petitioner alleged several instances of financial misappropriation and mismanagement by the respondents, including the sale of a company vehicle at a throwaway price, shifting the registered office to a property owned by respondent No. 2, and purchasing property at exorbitant prices. The court noted that these allegations were not effectively countered by the respondents and found evidence of financial mismanagement and misappropriation.

4. Denial of Access to Company Records:
The petitioner claimed that he was denied access to company records despite being a director and shareholder. The court noted that the Company Law Board had directed the respondents multiple times to allow inspection of records, but the respondents failed to comply, leading to the imposition of costs. The court found that the respondents' conduct in denying access to records was wrongful and burdensome.

5. Validity of Board Resolutions and Meetings:
The petitioner argued that the board meetings and resolutions were invalid due to the lack of proper notice and compliance with the company's articles. The court observed that the respondents failed to prove the validity of the notices and the resolutions passed in the board meetings. The court held that the resolutions removing the petitioner as a director and appointing new directors were invalid.

6. Equitable Relief and Valuation of Shares:
The petitioner sought a fair valuation of his shares and proposed to exit the company. The court considered the valuation reports submitted by both parties and directed the petitioner to go out of the company on receipt of fair value at Rs. 2,000 per share for his group's 1,500 shares within three months. The court also ordered that the petitioner would continue as a director until full payment was made, and any resolutions passed in board meetings including the newly appointed directors would not be effective unless approved by the court.

Conclusion
The court concluded that the respondents' conduct was oppressive and burdensome, lacking in probity. The petitioner's removal as a director was illegal and null and void. The court directed the petitioner to be bought out at a fair value of Rs. 2,000 per share and ordered that he continue as a director until full payment was made. All interim orders were vacated, and costs imposed on the respondents were to be paid forthwith.

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