2006 (9) TMI 582 - Board - Companies Law

Issues Involved:
1. Cancellation of share allotment.
2. Allegations of oppression and mismanagement.
3. Validity of board and general meetings.
4. Limitation and delay in filing the petition.
5. Existence of a family settlement.
6. Mis-joinder of parties.
7. Doctrine of indoor management.

Detailed Analysis:

1. Cancellation of Share Allotment:
The petitioners sought the cancellation of 1500 shares allotted to M/S Complex Credit, claiming it was illegal and void. The respondents argued that the petition was time-barred, as it was filed in 2002 for an allotment made in 1998. The judgment concluded that the petition was not barred by limitation due to the equitable nature of proceedings under Sections 397/398 of the Companies Act, 1956.

2. Allegations of Oppression and Mismanagement:
The petitioners alleged that the allotment of shares to the 10th respondent reduced their shareholding from 51.53% to 43%, converting them from majority to minority shareholders. The judgment found that the respondents had manipulated records and fabricated minutes of board meetings, as evidenced by the discrepancies in the minutes and the absence of notices for meetings. The court held that the allotment of shares was not bona fide and aimed to convert the majority into a minority, constituting oppression.

3. Validity of Board and General Meetings:
The petitioners claimed they did not receive notices for the board meeting on 1.9.1998, the AGM on 30.9.1998, and the board meeting on 20.11.1998. The judgment found that the respondents admitted to not issuing notices for board meetings and that the presence of the 1st petitioner was falsely recorded in the minutes of the meeting on 1.9.1998, when he was abroad. The court declared the resolutions passed in these meetings null and void.

4. Limitation and Delay in Filing the Petition:
The respondents argued that the petition was time-barred. However, the court held that the Limitation Act does not apply to proceedings under Sections 397/398 before the Company Law Board and that the delay was justified due to attempts to resolve the disputes amicably within the family.

5. Existence of a Family Settlement:
The respondents claimed that the allotment of shares was part of a family settlement. The judgment found no evidence of such a settlement, as it was not mentioned in the initial reply filed by the respondents. The court concluded that the alleged family settlement was an afterthought and had no relevance to the case.

6. Mis-joinder of Parties:
The respondents argued that the 3rd petitioner was not a shareholder, having transferred his shares to the 2nd petitioner. The court found that the transfer was not registered in the company's records and that the shares continued to be in the name of the 2nd petitioner. Therefore, the petitioners' claim of holding 51.53% shares was established.

7. Doctrine of Indoor Management:
The 10th respondent invoked the doctrine of indoor management, claiming protection as a bona fide allottee of shares. The court held that this doctrine could not be invoked in cases of alleged oppression and that the 10th respondent was not an independent entity but connected to the respondents. The court ordered the cancellation of the 1500 shares allotted to the 10th respondent.

Conclusion:
The judgment declared the resolutions related to the reclassification of capital and the allotment of 1500 shares to the 10th respondent as null and void. The company was directed to rectify its register of members by canceling the 1500 shares within a month. The respondents were given the option to sell their shares to the petitioners at a fair value determined by an independent valuer if they chose to exit the company.

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