2001 (6) TMI 817 - Board - Companies Law

Issues Involved:
1. Fraudulent allotment of shares.
2. Non-offer of further shares to the petitioner.
3. Validity of the transfer and retransfer of developmental rights.
4. Compliance with the Memorandum of Understanding (MOU).
5. Conduct of the parties and equitable relief.
6. Public interest and involvement of financial institutions.

Detailed Analysis:

1. Fraudulent Allotment of Shares:
The petitioner, holding 24.17% shares in the company, alleged that the respondents fraudulently allotted shares worth about Rs. 21 crores without any actual consideration. The company justified the allotment by stating that the land developmental rights were transferred to the second respondent, who pursued legal proceedings successfully, and the amount paid for these rights was invested in the company's shares. The petitioner argued that the transactions were sham and fraudulent, involving rotation of Rs. 1 crore multiple times to show false investment. The Board concluded that the petitioner was aware of the valuation and the retransfer of the developmental rights, and thus could not claim the transactions were fraudulent.

2. Non-offer of Further Shares to the Petitioner:
The petitioner contended that the company issued further shares in 1997 without offering any to them, violating Section 81A and the MOU which required maintaining shareholding parity. The respondents argued that notices were sent, and they were willing to transfer proportionate shares to the petitioner if desired. The Board noted the respondents' undertaking to provide proportionate shares if the petitioner expressed willingness, thus resolving this issue.

3. Validity of the Transfer and Retransfer of Developmental Rights:
The petitioner challenged the legality of transferring and retransferring developmental rights without NDMC's consent and without any initial consideration. The company argued that the rights were transferred to pursue the High Court case and later retransferred to expedite the project. The Board found that the petitioner was aware of the developmental rights being valued and transferred, as evidenced by various documents and communications, and thus could not claim the transactions were invalid.

4. Compliance with the Memorandum of Understanding (MOU):
The petitioner claimed that the respondents violated the MOU by not bringing in Rs. 22 crores in cash as stipulated. The Board held that private agreements not forming part of the Articles are not binding on the company, especially when the petitioner itself claimed to be an institutional investor without involvement in management. The Board found that the petitioner was aware of the valuation and the method of discharging the liability, and thus could not allege non-compliance with the MOU.

5. Conduct of the Parties and Equitable Relief:
The Board emphasized the conduct of the parties in equitable proceedings under Sections 397/398. It found that the petitioner acted prejudicially against the company's interests by making complaints to financial institutions and attempting to stall the project. The Board also noted that the petitioner backed out of a settlement agreement despite the respondents' efforts to comply. The Board concluded that the petitioner's conduct disentitled it from equitable relief.

6. Public Interest and Involvement of Financial Institutions:
The petitioner argued that public interest was involved due to financial institutions lending money to the company. The Board noted that despite the petitioner's complaints, financial institutions continued their support, indicating they were not impressed by the allegations. The Board also stated that any statutory violations found in the inspection report by the Department of Company Affairs would be dealt with independently by the Registrar of Companies.

Conclusion:
The Board dismissed the petition, finding that the petitioner was aware of and had consented to the transactions it later challenged. The Board also provided an option for the petitioner to exit the company by selling its shares, valued by an independent valuer, or to continue as a shareholder by acquiring proportionate shares issued in 1997. The petition was disposed of with no order as to costs.

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