2006 (12) TMI 535 - Board - Companies Law

Summary

Issues Involved:
1. Illegal removal and appointment of directors.
2. Issuance of further shares.
3. Validity of Extraordinary General Meeting (EOGM).
4. Allegations of oppression and mismanagement.
5. Control and management of the company.

Summary:

1. Illegal Removal and Appointment of Directors:
The petitioners, holding 71.43% equity shares and 81.47% preference shares in M/S R.S. Infrastructures Limited, alleged that they were illegally removed as directors and replaced by the 2nd, 3rd, and 4th respondents. They contended that the respondents filed Form No. 32 with the ROC indicating these changes without following the provisions of Section 284 of the Act and without any notice for the EGM held on 29.11.2004.

2. Issuance of Further Shares:
The petitioners also claimed that the respondents illegally issued 15 lakh equity shares to the 7th respondent, thereby attempting to gain majority control, which was deemed oppressive to the petitioners. The respondents argued that the issuance was legal and in accordance with the decisions taken in the EOGM.

3. Validity of Extraordinary General Meeting (EOGM):
The petitioners challenged the validity of the EOGM held on 29.11.2004, alleging that they did not receive any notice for the meeting. The respondents contended that the notices were sent and the meeting was held legally. The Board found that the notice under Section 188 was not served on the company but on an individual director, and there was no proof that notices were sent to the petitioners. Consequently, the EOGM held on 29.11.2004 was declared invalid, and no statutory authority would take cognizance of the resolutions passed in that EOGM.

4. Allegations of Oppression and Mismanagement:
The respondents argued that since the petitioners claimed to be majority shareholders and controlled the company, they could not allege oppression or mismanagement. The Board held that in closely held companies, removal of a long-associated shareholder from the board could be considered an act of oppression and could be agitated u/s 397/398 of the Act. The Board also noted that the entire exercise relating to the EOGM was carried out in a manner oppressive to the petitioners.

5. Control and Management of the Company:
The respondents contended that the control of the company should remain with the 7th respondent due to its credentials and the terms of the original BOT agreement. The Board found contradictions in the 2nd respondent's stand and noted that control of a company is determined by shareholding. The petitioners, holding 71.73% of the equity shares, had the right to manage the affairs of the company. The Board provided an option for joint management as per an undated "Terms of Settlement" signed by the 2nd respondent and the 2nd petitioner, but the respondents were not willing to adopt it.

Conclusion:
The EOGM held on 29.11.2004 was declared invalid, and the status quo regarding the board, authorized and paid-up capital, and the company's name was to remain as it was before the EOGM. The petitioners, holding majority shares, had the right to manage the company. The Board provided an option for joint management, but the respondents were not willing to adopt it. All interim orders were vacated.