2004 (3) TMI 796 - Board - Companies Law

Summary

Issues Involved:
1. Eligibility to file the petition under Section 399 of the Companies Act, 1956.
2. Allegations of mismanagement and oppression.
3. Alleged manipulation and misuse of company funds.
4. Removal of petitioner from directorship.
5. Validity of notices for board meetings and special notices under Section 284 of the Companies Act, 1956.
6. Reliefs sought by the petitioner.

Detailed Analysis:

1. Eligibility to File Petition:
The petitioner, holding 33.33% of the total share capital of the respondent company, is entitled under Section 399 of the Companies Act, 1956, to file the petition.

2. Allegations of Mismanagement and Oppression:
The petitioner alleged that R-3, though not a director, had substantial management powers and masterminded various irregularities and acts of oppression. These included manipulating the petitioner and other respondents to sign blank cheques, shifting company records without consent, refusing inspection of accounts, and issuing cheques to wrong persons, some of which were dishonored.

3. Alleged Manipulation and Misuse of Company Funds:
The petitioner claimed that R-3 withdrew Rs. 9.40 lakhs fraudulently, misused pre-signed blank cheques, and manipulated purchases to benefit relatives. The petitioner also alleged that R-3 caused financial losses to the company and siphoned off funds by appointing a relative as a consultant on a high salary without justification.

4. Removal of Petitioner from Directorship:
The petitioner contended that his removal and that of his son from directorship on 26.3.99 was illegal. He argued that the notice of the Extraordinary General Meeting was not received, and special notice under Section 284(2) of the Companies Act, 1956, was not given. The respondents, however, claimed that the removal was done as per the provisions of the Companies Act and was necessary due to the petitioner's obstruction in the company's functioning.

5. Validity of Notices for Board Meetings and Special Notices:
The petitioner argued that the notices for the board meeting and the Extraordinary General Meeting were not properly served, as they were sent from Shahadara Post Office, which was not near the company's registered or working office. The respondents justified this by stating it was for administrative convenience. However, the respondents failed to provide proof of special notice under Section 284(2) and (3), making the removal of the petitioner and his son from directorship invalid.

6. Reliefs Sought by the Petitioner:
The petitioner sought restoration to the board, joint operation of the bank account, investigation into the company's affairs, and winding up of the company. The primary relief sought was the restoration of the petitioner and his son to their directorship positions, which was granted as the removal was found to be illegal due to non-compliance with Section 284(2) and (3) of the Companies Act, 1956.

Conclusion:
The resolution passed in the Extraordinary General Meeting held on 27.3.1999 was set aside, and the petitioner and his son were restored to their original positions as directors. The petitioner was given an option to exit the company with a valuation of his shares based on the balance sheet as of 31.3.1999. The petition was disposed of with no orders as to costs.