2007 (3) TMI 789 - Board - Companies Law

Issues Involved:
1. Non-sending of notice of board meetings
2. Improper conduct of board meetings
3. Illegal appointment of additional directors
4. Illegal appointment of managing director
5. Illegal ousting of directors
6. Misappropriation of funds and financial irregularities
7. Illegal disposition of assets
8. Illegal convening of annual general meetings
9. Illegal acquisition of shares
10. Abuse of fiduciary position
11. Improper maintenance of accounts
12. Suppression of turnover

Detailed Analysis:

1. Non-sending of Notice of Board Meetings:
The petitioners alleged that notices for board meetings were not sent to the first petitioner, violating the requirement to notify all directors. The respondents claimed notices were sent either by hand delivery or post. The court emphasized that notice to every director is mandatory, and failure to do so invalidates the board meetings and their resolutions.

2. Improper Conduct of Board Meetings:
The petitioners argued that the board meetings were conducted improperly without proper notice. The court found that the absence of valid notice to the first petitioner rendered the board meetings and their resolutions invalid.

3. Illegal Appointment of Additional Directors:
The petitioners claimed that additional directors were appointed illegally. The court noted that the appointment of directors without proper notice and in the absence of the first petitioner was invalid and constituted an act of oppression.

4. Illegal Appointment of Managing Director:
The petitioners contested the appointment of the second respondent as managing director. The court found that the appointment was made without proper notice to the first petitioner and in his absence, thus constituting an act of oppression.

5. Illegal Ousting of Directors:
The petitioners alleged that certain directors were ousted illegally. The court found that the ousting was done without proper notice and in the absence of the first petitioner, making it invalid and oppressive.

6. Misappropriation of Funds and Financial Irregularities:
The petitioners accused the respondents of misappropriating funds and incurring disproportionate advertisement expenses. The court appointed an independent Chartered Accountant to verify the books of account and other records for financial irregularities.

7. Illegal Disposition of Assets:
The petitioners alleged unauthorized sale of assets. The court found that the sale of assets was made without proper board authorization and notice, constituting mismanagement.

8. Illegal Convening of Annual General Meetings:
The petitioners claimed that annual general meetings were convened illegally at shorter notice. The court found that the meetings were convened without proper notice, violating the articles of association and statutory requirements.

9. Illegal Acquisition of Shares:
The petitioners alleged that shares were acquired illegally by the second respondent and his associates, violating the articles of association. The court found that the transfers were made without previous sanction of the board and without adhering to the pre-emptive rights of other shareholders, making the transfers invalid.

10. Abuse of Fiduciary Position:
The petitioners accused the second respondent of abusing his fiduciary position by transferring shares and reconstituting the board to gain control. The court found that the second respondent acted in bad faith and violated his fiduciary duties.

11. Improper Maintenance of Accounts:
The petitioners alleged improper maintenance of accounts. The court appointed an independent Chartered Accountant to verify the accounts and report on any irregularities.

12. Suppression of Turnover:
The petitioners claimed that there was a large-scale suppression of turnover. The court directed an independent verification of the financial transactions to ascertain the validity of these claims.

Conclusion:
The court found significant evidence of oppression and mismanagement, including improper conduct of board meetings, illegal appointments, unauthorized asset sales, and financial irregularities. The court ordered the rectification of the register of members, reconstitution of the board, proper notice for board meetings, and an independent audit of the financial transactions. The court also directed the companies to finalize accounts and convene annual general meetings in compliance with statutory requirements.

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