2007 (3) TMI 793 - Board - Companies Law

Summary

Issues Involved:
1. Non-sending of notice of the board meetings to the first petitioner.
2. Improper conduct of the board meetings.
3. Illegal appointment of additional directors.
4. Illegal appointment of the first respondent as managing director.
5. Illegal interference in the day-to-day affairs of the Company.
6. Illegal acquisition of shares in violation of the articles of association and Section 108 of the Act.
7. Abuse of fiduciary position by the first respondent.

Detailed Analysis:

1. Non-sending of Notice of the Board Meetings to the First Petitioner:
The petitioners alleged that notices for board meetings were not sent to the first petitioner, which vitiates the entire proceedings of the board meetings. The legal principle cited includes that any board meeting convened without notice to one director is invalid (Parmeshwari Prasad Gupta v. Union of India). The judgment found no material to substantiate that notices were sent to the first petitioner, thus concluding the resolutions passed at such meetings are inoperative.

2. Improper Conduct of the Board Meetings:
The petitioners argued that the board meetings were improperly conducted, with no actual meetings held and minutes fabricated. The judgment noted the improbability of the first petitioner requesting leave of absence for multiple meetings and found the extracts of the attendance register to be self-serving without advancing the respondents' case.

3. Illegal Appointment of Additional Directors:
The petitioners contended that the appointment of respondents 2 to 7 as additional directors was illegal as it violated Article 31, which requires qualification shares. The judgment held that the appointments were not valid due to the lack of proper notice and the absence of qualification shares, rendering such appointments void ab-initio.

4. Illegal Appointment of the First Respondent as Managing Director:
The first respondent's appointment as managing director was challenged on the grounds of no proper notice and improper board meeting. The judgment concluded that the decision to oust the first petitioner from the managing directorship and install the first respondent without valid notice constitutes an act of oppression.

5. Illegal Interference in the Day-to-Day Affairs of the Company:
The petitioners claimed that the first respondent interfered with the day-to-day operations, including advising suppliers not to supply materials on credit. The judgment noted that such interference was neither bona fide nor in the interest of the Company.

6. Illegal Acquisition of Shares in Violation of the Articles of Association and Section 108 of the Act:
The petitioners alleged that the acquisition of shares by the first respondent and her associates violated the articles of association and Section 108 of the Act. The judgment found that the transfers were made without the previous sanction of the board of directors, as required by Article 18, and without adhering to the pre-emptive rights under Articles 19 and 20. The transfers were thus set aside.

7. Abuse of Fiduciary Position by the First Respondent:
The petitioners argued that the first respondent abused her fiduciary position by transferring shares and reconstituting the board to usurp control over the Company. The judgment held that the directors did not act with utmost good faith and for the benefit of the Company, as required by their fiduciary duties.

Conclusion:
The judgment concluded that the transfers of shares and appointments of directors were in violation of the articles of association and constituted acts of oppression. It ordered the rectification of the register of members, reconstitution of the board of directors, and adherence to the proper procedure for future board meetings. The company petition and connected applications were disposed of with no order as to cost.