2004 (4) TMI 622 - Board - Companies Law

Allotment of Preference Shares - Non-sending of Notices and Balance Sheets - Delisting of Shares - Non-registration of Shares - Exclusion of the Petitioners from Management - Leasing of Lands - HELD THAT - A perusal of the various allegations made in the petition and the findings given by us would indicate that except the allotment of preference shares in exclusion of the petitioner; non-representation of the petitioners group on the Board and leasing of properties of the company others are not material. It is an admitted fact that the relationship between the two groups has not been cordial for a very long time. With the intervention of two eminent personalities the parties have resolved a number of issues resulting in parting of ways in other companies. We are of the view that the disputes in respect of the present company also should be resolved by one of the groups going out of the company. Since the respondents hold 52 per cent shares in the company it would be appropriate to direct the petitioners to go out of the company on receipt of proper consideration. In a number of cases as cited by Shri Mylsamy this Board has divided the business of the company between the two groups of family members. In the present case the company is not having any business except running a hotel but is in possession of a vast real estate. Therefore we are of the view that instead of cash consideration being paid to the petitioners for their shares the assets and properties of the company could be divided and properties to the extent of 44 per cent by value could be given to the petitioners. Determination of the value of the company as a whole and the value of 44 per cent shares held by the petitioner could be done by an independent valuer. On the basis of the valuation report the respondents could prepare two or three alternate packages of assets and properties to be given to the petitioners to the extent of 44 per cent of the value of the company and the petitioners could have the liberty to chose one of the packages. Once the petitioners choose one of the packages they will no longer be shareholders of the company and the company could reduce its share capital to the extent of 44% of the shares at the face value. This would complete the parting of ways between the two groups as far as this company is concerned. Accordingly we direct so. The parties will appear before us on 20-5-2004 at 2.30 p.m. to suggest a mutually acceptable valuer to determine the value of the company at which time further directions regarding valuation will be given.

Issues Involved:
1. Allotment of Preference Shares
2. Non-sending of Notices and Balance Sheets
3. Delisting of Shares
4. Non-registration of Shares
5. Exclusion of the Petitioners from Management
6. Leasing of Lands
7. Exorbitant Expenses and Personal Expenses Debited to the Company's Account

Summary:

1. Allotment of Preference Shares:
The petitioners alleged that the extraordinary general meeting held on 5-12-2002, which led to the allotment of 2000, 8% cumulative redeemable preference shares to respondents 8 & 9, was conducted without proper notice to them. They claimed this allotment was an act of oppression as it excluded them and was illegal u/s 153. The respondents argued the allotment was necessary to meet statutory requirements and was not oppressive. The Board found the allotment in exclusion of the petitioners to be an act of oppression against minority shareholders.

2. Non-sending of Notices and Balance Sheets:
The petitioners claimed they did not receive notices for meetings or copies of balance sheets despite repeated requests and deposits made for registered post delivery. The respondents contended that notices were hand-delivered, a practice followed for years. The Board found the company's failure to send notices and balance sheets as requested to be unjustifiable, especially given the strained relationship between the parties.

3. Delisting of Shares:
The petitioners argued that the delisting of the company's shares from the Bangalore Stock Exchange was done without following proper procedures, restricting their ability to transfer shares. The respondents claimed the delisting was resolved in 1998 due to procedural burdens and lack of trading activity. The Board found the company's lack of transparency and failure to produce evidence of compliance with delisting procedures to be problematic.

4. Non-registration of Shares:
The petitioners 6 & 7 faced delays in the registration of shares they acquired, which the company initially refused to register. The respondents attributed the delay to ongoing litigation. The Board noted the protracted litigation but accepted the respondents' commitment to expeditiously register pending share transfers, subject to legal requirements.

5. Exclusion of the Petitioners from Management:
The petitioners, holding 44% of the company's shares, were excluded from the Board, with their candidatures for directorship rejected. The respondents argued this was not oppressive. The Board found the exclusion of the petitioners from the Board, despite their substantial shareholding, to be an act of oppression, especially given the family nature of the company.

6. Leasing of Lands:
The petitioners alleged that the company leased its vast properties at nominal rents to entities controlled by the respondents, without benefiting the company. The respondents denied these claims, stating the leases were for public purposes and rents were revised. The Board found the leases, many without rent revision clauses, to be detrimental to the company's interests and not justified by the respondents.

7. Exorbitant Expenses and Personal Expenses Debited to the Company's Account:
The petitioners claimed the company incurred unnecessary expenses, including a high salary for the Managing Director and other administrative costs, benefiting the respondents. The respondents argued these expenses were within permissible limits and approved by the members. The Board found the Managing Director's remuneration reasonable but noted the petitioners failed to prove personal misuse of company funds by the respondents.

Conclusion:
The Board concluded that the disputes between the parties, particularly the allotment of preference shares, exclusion from management, and leasing of properties, warranted a resolution. Given the strained relationship, the Board directed the division of the company's assets, allowing the petitioners to receive properties equivalent to their 44% shareholding, thus facilitating a parting of ways between the two groups. The parties were instructed to suggest a mutually acceptable valuer for determining the company's value.

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