2004 (7) TMI 673 - Board - Companies Law

Summary

Issues Involved:
1. Illegal removal of the Managing Director.
2. Unlawful appointment of a new Managing Director.
3. Unauthorized allotment of shares.
4. Alleged mismanagement and oppression of minority shareholders.
5. Proposal for the parties to part ways.

Detailed Analysis:

1. Illegal Removal of the Managing Director:
The petitioners argued that Petitioner No. 1, who had been the Managing Director of the respondent company since 1978, was illegally removed from his post on 1-3-2002 without any notice or meeting. The respondents failed to provide any documentation such as Board Meeting notices to support the legality of this removal. The judgment noted that no notice was issued for the Board Meeting purported to remove Petitioner No. 1, and this was admitted by the respondents' counsel during the arguments. Consequently, the removal of Petitioner No. 1 was deemed illegal, and he was reinstated as Managing Director.

2. Unlawful Appointment of a New Managing Director:
The respondents appointed Mr. Ajit Singh as the new Managing Director on 1-3-2002. However, the petitioners contended that this appointment was made without holding a proper Board Meeting or issuing any notice, which was a violation of the Companies Act, 1956. The judgment confirmed that no notice was issued for the meeting that appointed Mr. Ajit Singh, and thus, his appointment was set aside.

3. Unauthorized Allotment of Shares:
The respondents allotted 1523 equity shares to themselves and their family members on 13-3-2002 without notifying other shareholders or holding a Board Meeting. The petitioners argued that this allotment was illegal and intended to reduce their shareholding from 23.03% to 9%. The judgment found that the respondents failed to provide any records of the Board Meeting for this allotment, and the Form No. 2 filed with the Registrar of Companies was dated 1-3-2002, which indicated mala fide intentions. The allotment of these shares was thus set aside.

4. Alleged Mismanagement and Oppression of Minority Shareholders:
The petitioners alleged that the respondents had siphoned off funds, closed the cinema hall without consulting the Board, and engaged in various acts of mismanagement. The respondents countered that the company incurred losses due to the mismanagement by Petitioner No. 1 and that the cinema was closed due to financial difficulties. The judgment did not delve deeply into these allegations but focused on the illegal removal and share allotment issues.

5. Proposal for the Parties to Part Ways:
The petitioners suggested that due to the breach of mutual trust and confidence, it was impossible for both parties to work together, and the only solution was to part ways. The respondents offered to restore Petitioner No. 1 as Managing Director and revoke the share allotment, but this offer was rejected by the petitioners. The judgment concluded that it was a fit case for allowing the parties to part ways. The petitioners were given the option to sell their shares to the respondent company, which would be valued by an independent valuer based on the balance sheet as of 31-3-2001.

Conclusion:
The petition was disposed of with directions for the valuation and potential sale of the petitioners' shares, ensuring a permanent solution to the conflict. There was no order as to costs.