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2014 (3) TMI 1070 - Board - Companies LawIllegal appointment of Respondent Nos. 2 and 3 as Directors of the Respondent No.1 Company made at the EOGM - oppression and mismanagement - Held that - From the bare perusal of the notice and the minutes, they appear false and concocted and it is proved that the said documents were prepared as an afterthought, to cook-up a false defence by the Respondents in their favour. The Respondent No.3 failed to satisfy me as to what was the necessity to appoint the new Directors, particularly when a Company was not carrying any activity for the last many years and the Respondent No. 4 had even applied for cancellation of Tax Registration etc. The contention of the Respondent No. 3 that the new Directors were appointed to strengthen the Board of Directors of the Company is without any basis and lacks merit. Therefore, it is rejected. Furthermore, from the perusal of the Form No.32 relating to appointment of the Respondent Nos. 2 and 3, it is noted that it does not contain their Consent Letters and the Resolutions etc. Even Sr. No. of Board Resolution is shown as 00 . This all support the case of the Petitioner that the said documents are cooked-up documents and cannot be relied upon. We therefore come to the conclusion that the Respondents have made an unsuccessful attempt to rely upon false and concocted evidence which is the result of an afterthought. The Respondents 3 has no convincing answer to the Petitioner s contention that any valid Board Meeting could he held as she was the only other Director of the Company to approve the notice to convene the impugned EOGM, therefore, find the appointments of the Respondent Nos. 2 and 3 as Directors of Respondent No. l Company as non-est, illegal and liable to be set aside. Act of oppression - Held that - Upon a critical analysis of the facts stated and the documents filed in support thereof by the Answering Respondents, they do not seem worthy to relay upon. Therefore, inclined to accept the contention of the Petitioner that the Board Meeting held on 22/02/2010 whereat the resolution for shifting of the registered office of the company was passed at the back of the petition is null and void and amounts to an act of oppression as defined in the provisions contained in Section 397 of the Companies Act, 1956. Validity of the Extraordinary General Meeting held on 24/4/2010, whereat the Petitioner was removed under Section 284 of the Indian Companies Act, 1956 - Held that - The Petitioner has been illegally removed from the Directorship without following the due procedure of law and without giving any proper convincing and cogent reason for her removal. The case of the Petitioner regarding non-receipt of notice for any Board Meeting is Found to be correct. The statement of the Petitioner that due to apprehension and threat to her life she did not attend the EOGM in my view appears true. Petitioner has succeeded in making out a case of illegal removal from the Directorship of the Company, with malafide motive to gain entire control over the management and affairs of the Company, As indicated hereinbefore, the Company was not carrying any activity or business for a going time and in September 2007, even the assets of the Company were sold off. Tax Registration certificate were cancelled. It is the case of both, the Petitioner as well as the Respondents, that in future there was no possibility of carrying on any business by the company. In such a situation, the appointment of the Respondent Nos.2 and 3 as the Directors and removal of the Petitioner as Director who was 40% shareholder seems without any convincing and cogent reason, but for gaining control over the entire affairs of the Company. Mismanagement committed by the Respondents in the affairs of the company by way of siphoning of its funds - Held that - Looking into the allegations and counter-allegations, it would be just and proper to leave it to the Board of Directors of the Company to get the accounts of the Company audited to ascertain the siphoned of alleged diverted funds and on the basis of such report the company will be entitled to get back such amounts to its own account from the person responsible for it. Maintainability of the petition - Held that - Though, it is apparent that the Petitioner in her petition has not specifically pleaded that the affairs of the Company are being conducted in a manner oppressive to any member and that to wind up the company could unfairly prejudice such member, but otherwise the facts would justify the making up of a winding up order on the ground that it was just and equitable that the Company should be wound up, however, in my opinion, the charges levelled by the Petitioner against the answering Respondents alleging them to be acts of oppression and mismanagement clearly prove that the affairs of the company are being conducted in a manner oppressive to its members but it would not be just and equitable to wind up the company, would unfairly prejudice such member, but that otherwise the facts would justify the making up of winding up order on the order it was just and equitable that the company should be wound up. The sequence of events narrated above, thus go to prove that the conduct of the Respondents towards the Petitioner has been consistently harsh, burdensome, unfair and lacks in probity. The Petitioner has therefore, succeeded to prove the allegations relating to acts of oppression and mismanagement in the affairs of the Respondent No.l Company as defined under section 397/398 of the Act, and the petition therefore, deserve to be allowed.
Issues Involved:
1. Illegal appointment of Respondent Nos. 2 and 3 as Directors. 2. Shifting of Registered office without following due process of law. 3. Removal of the Petitioner as a Director. 4. Siphoning of the Funds. Detailed Analysis: Illegal Appointment of Respondent Nos. 2 and 3 as Directors: The Petitioner alleged that Respondent Nos. 2 and 3 were illegally appointed as Directors during a Board Meeting purportedly held on 20/02/2010 without following due process and without proper notice, thereby rendering the appointment null and void. The Petitioner contended that no notice of the meeting was received, and the meeting lacked the required quorum as per the Articles of Association. The Respondents argued that notices were duly served and that the appointments were made in a legally convened EOGM. However, the court found the Respondents' evidence, including the minutes of the EOGM, to be fabricated and the appointments of Respondent Nos. 2 and 3 as Directors were declared non-est, illegal, and set aside. Shifting of Registered Office without Following Due Process of Law: The Petitioner alleged that the registered office was shifted without proper authority and due process. The Respondent No. 3 claimed that a circular resolution was passed and circulated, but the Petitioner was not available to sign it. The court found no corroborative material to prove that the notice was duly served upon the Petitioner and declared the Board Meeting where the resolution was passed as null and void, amounting to an act of oppression. Removal of the Petitioner as a Director: The Petitioner alleged illegal removal from the office of the Director in an EOGM purportedly held on 24/04/2010 without proper notice and without holding a prior Board Meeting. The Respondent No. 3 argued that the removal was done through a resolution by circulation, which the Petitioner refused to acknowledge. The court found that the Petitioner was removed without following due procedure and without any convincing reason, amounting to an oppressive act. The removal was declared non-est, ultra vires, and illegal, and the Petitioner was reinstated as a Director. Siphoning of the Funds: The Petitioner accused Respondent Nos. 2 and 3 of siphoning off funds amounting to Rs. 25,57,517/- for their personal benefit. The Respondents countered that the payments were made to creditors in the due course of business and were duly accounted for. The court decided that the accounts of the Company should be audited by an appointed Chartered Accountant to ascertain any loss caused by siphoning of funds, and any director found responsible would be liable to make good the loss. Court's Order: 1. The EOGMs held on 20/02/2010 and 24/04/2010 were declared non-est, invalid, and illegal. 2. The appointments of Respondent Nos. 2 and 3 as Directors were declared ultra vires, null, and void, and were set aside. The Company was directed to file appropriate forms showing their cessation as Directors. 3. The resolution for shifting the registered office was set aside, and status quo ante was restored. 4. The resolution removing the Petitioner as a Director was set aside, and the Petitioner was reinstated with all benefits. 5. The newly constituted Board was directed to appoint a Chartered Accountant for a special audit to assess any loss caused by siphoning of funds, with liable directors to make good the loss. 6. No order as to costs. 7. Interim orders, if any, were vacated, and pending C.A.s were disposed of accordingly. 8. A copy of the order was to be circulated to all concerned.
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