2000 (5) TMI 1082 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement under Sections 397/398 of the Companies Act, 1956.
2. Validity of the increase in authorized capital and subsequent allotment of shares.
3. Removal of a director and compliance with Section 284 of the Companies Act.
4. Validity of board and general meetings and the notices issued for these meetings.
5. Allegations of financial mismanagement and improper financial benefits.
6. Rectification of the register of members under Section 111(4) of the Companies Act.

Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioners alleged that the second respondent engaged in oppressive acts by increasing the share capital and allotting shares to himself and his family members, thereby converting the petitioners from a majority to a minority. The petitioners argued that the company was managed as a quasi-partnership, and the acts of the second respondent lacked probity and fair play. The petitioners also contended that the removal of the fifth respondent as a director was done without complying with Section 284(1) of the Act.

2. Validity of Increase in Authorized Capital and Subsequent Allotment of Shares:
The board meeting on 15-4-1999 decided to increase the authorized capital and allot 1.5 lakh shares to the second respondent and his family members. The petitioners argued that this decision was taken without proper notice and was aimed at converting the majority into a minority. The court found that the increase in authorized capital and the subsequent allotment of shares were invalid due to non-issue of notices to the majority shareholders and the lack of disclosure about the allotment decision.

3. Removal of a Director and Compliance with Section 284:
The fifth respondent was removed as a director in an extraordinary general body meeting on 3-8-1999. The petitioners argued that they did not receive notices for this meeting and that the requirements of Section 284 were not complied with. The court noted that the meeting was not validly convened as it was a requisitioned meeting without proper consideration by the board. The court declared that the fifth respondent would continue as a director.

4. Validity of Board and General Meetings and Notices Issued:
The petitioners contended that the agenda for the board meeting on 15-4-1999 did not include all the items transacted, indicating mala fide intentions. The court found that the non-inclusion of important items like the increase in authorized capital in the agenda was indicative of bad faith. The court also found that the extraordinary general body meeting on 5-6-1999 was invalid due to non-issue of notices to the majority shareholders, and the certificate of posting produced by the respondents was deemed fabricated.

5. Allegations of Financial Mismanagement and Improper Financial Benefits:
The respondents alleged that the petitioners and the fifth respondent acted against the company's interest by approving terminal benefits and a loan to the fifth respondent. The court found that similar benefits were approved for the second respondent and that the loan amount had been drawn over time. The court deemed these allegations as afterthoughts.

6. Rectification of Register of Members:
The petitioners sought the deletion of the remarks in the register of members indicating that their shares were sold. The court directed the company to delete these remarks since mere entering into a sale agreement does not vest the rights of a member to the buyer.

Conclusion:
The court found that the increase in authorized capital and the subsequent allotment of shares were invalid and declared the resolutions passed in the extraordinary general body meeting on 5-6-1999 as invalid. The court directed the company to cancel the 1.5 lakh shares issued on 18-6-1999 and refund the consideration received. The court also declared that the fifth respondent would continue as a director and directed the company to delete the remarks in the register of members. The second petition was dismissed as nothing survived in light of the court's directions in the first petition.