2001 (11) TMI 1036 - Board - Companies Law

Summary

Issues Involved:
1. Validity of the purported EOGM dated 24-3-1999 and the resolution passed regarding the allotment of 2000 additional shares.
2. Whether the transfer of shares by three groups of shareholders to the third respondent violated Article 10 of the Articles of Association.

Summary:

Issue 1: Validity of the EOGM and Allotment of Shares

The petitioners alleged that no notice of the purported EOGM dated 24-3-1999 was given to them and that the meeting did not actually take place. They claimed that the minutes of the said meeting were fabricated. The respondents contended that the EOGM was held with due notice to all shareholders and attended by 76.4% of the equity shareholders, except the Mondal group. However, the respondents failed to provide any evidence, such as postal certificates or dispatch registers, to prove that notices were sent. The court noted that the respondents did not produce any minutes of the Board meeting that allegedly decided to call the EOGM, nor did they provide any proof of service of notice to the first petitioner, who was a director.

The court held that the respondents failed to establish that notices for the EOGM were sent to the petitioners. Additionally, the court found that certain businesses not proposed in the notice were transacted in the meeting, making the decisions taken at the EOGM invalid. However, the court did not find sufficient evidence to conclude that the meeting did not take place or that the minutes were fabricated. Despite the procedural lapses, the court did not nullify the allotment of 2000 shares to the third respondent, as it was done in the interest of the company, which was in financial difficulties.

Issue 2: Transfer of Shares and Violation of Article 10

The petitioners argued that the transfer of shares by three groups of shareholders to the third respondent violated Article 10 of the Articles of Association, which requires that shares be offered to existing members before being transferred to non-members. The respondents admitted the transfer but claimed it was in accordance with Article 10, as the third respondent had become a shareholder on 24-3-1999.

The court noted that Article 10(a) prohibits the transfer of shares to non-members as long as any member is willing to purchase them. Article 10(b) requires a notice of intention to sell to be given to the company. The court found that the third respondent, having become a shareholder on 24-3-1999, was eligible to purchase the shares. The court also noted that the petitioners would have been entitled to only 23% of the shares transferred, not all of them. The court held that the transfer of shares, even if in violation of Article 10, was not an act of oppression, as it was done in the interest of the company.

Relief Granted:

The court directed that the petitioners' group would exit the company on receipt of proper consideration for their shares. The company was instructed to get the valuation of the shares done by the statutory auditors based on the balance sheet as on 31-3-2000. The consideration for the shares held by the petitioners' group would be paid either by the respondents or by the company, and the whole exercise was to be completed within six weeks from the date of receipt of the valuation report. The petition was disposed of with no order as to costs.