2008 (5) TMI 697 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the Petition u/s 397 and 398 of the Companies Act, 1956.
2. Transmission of Shares.
3. Alleged Oppressive Allotment of Additional Shares.
4. Mismanagement and Financial Misconduct.
5. Illegal Appointment of Additional Director.

Summary:

1. Maintainability of the Petition u/s 397 and 398:
The respondents argued that the petitioners did not meet the minimum requirement u/s 399(1)(a) of the Act, as they did not hold at least 1/10th of the issued share capital. The petitioners contended that the shareholding of P-1 and the consenter amounted to 22.5% of the unchallenged paid-up capital of 2000 shares. The Board held that the petition was maintainable, as the shareholding of P-1 and the consenter met the eligibility criteria, and the issue of further shares would be examined first.

2. Transmission of Shares:
The petitioners requested the transmission of shares held by deceased shareholders. The respondents argued that the petitioners did not produce necessary documents like Probate or Succession Certificate. The Board directed that, given the closely held nature of the company, transmission should be done after obtaining indemnity bonds, as non-transmission without reason is an act of oppression.

3. Alleged Oppressive Allotment of Additional Shares:
The petitioners challenged the allotment of 3000 additional shares to the respondents, alleging it was done without notice and proper procedure. The Board found the allotment oppressive, as it reduced the petitioners' shareholding from 50% to 20%. The Board set aside the increase and allotment of shares, restoring the status quo ante, and held that the petitioners' challenge was not barred by limitation, as the allotment was a continuous act of oppression.

4. Mismanagement and Financial Misconduct:
The petitioners alleged that the respondents retained cash in hand for personal use and did not maintain a bank account. The Board directed the respondents to credit the amount to the company's bank account with 12% interest. The petitioners also alleged non-recovery of dues and mismanagement of company assets. The Board found these allegations uncontroverted and indicative of mismanagement.

5. Illegal Appointment of Additional Director:
The petitioners challenged the appointment of R-3 as an additional director, arguing it was done without proper procedure. The Board found that R-2 alone could not convene a board meeting to appoint R-3 after the death of S. Ajit Singh Jhikka. The Board set aside the appointment of R-3 and directed the reconstitution of the Board in the next AGM, giving due representation to the petitioners.

Conclusion:
The petition was disposed of with directions for the transmission of shares, setting aside the allotment of additional shares, crediting misappropriated funds to the company's bank account, and reconstituting the Board. All CAs were disposed of, and interim orders vacated, with no orders as to cost.