2011 (10) TMI 713 - Board - Companies Law

Summary

Issues Involved:
1. Contravention of provisions relating to notices for board and general meetings.
2. Dilution of economic shareholding of the petitioner.
3. Denial of inspection of documents to the petitioner.
4. Interference by respondent No. 3 in the affairs of the company.

Issue-wise Detailed Analysis:

1. Contravention of provisions relating to notices for board and general meetings:
The petitioner alleged that the respondents failed to give proper notice for the board meetings and general meetings, contravening the provisions of the shareholder agreement (SHA) and the articles of association. The respondents argued that notices were sent to the petitioner's nominee director via email and telephonically, and that the nominee director participated in the meetings through teleconference. The court found that the company followed the procedures stipulated in the articles and the SHA, and there was no contravention of provisions relating to notices. The court also noted that as per Section 286(1) of the Companies Act, notice is required to be given to directors residing in India, and the petitioner's nominee director did not have a mailing address in India.

2. Dilution of economic shareholding of the petitioner:
The petitioner contended that the respondents allotted shares of respondent No. 8 to respondent No. 3 without offering them to the petitioner, diluting their economic shareholding. The court noted that respondent No. 8 is a subsidiary of respondent No. 1, and the petitioner is not a shareholder of respondent No. 8. The court held that the petitioner, not being a shareholder of respondent No. 8, is not entitled to be offered shares. The court found no illegality in the allotment of shares to respondent No. 3, as the decision was taken by the majority of the board of directors of respondent No. 8 in accordance with the articles of association and the SHA.

3. Denial of inspection of documents to the petitioner:
The petitioner claimed that they were not given access to inspect the records and documents of the company. The court acknowledged that the petitioner, as a shareholder and director, is entitled to inspect the registers, records, and other documents of respondent No. 1 according to law and can obtain copies thereof. The court directed that the petitioner should be provided with the necessary information and documents.

4. Interference by respondent No. 3 in the affairs of the company:
The petitioner alleged that respondent No. 3 was interfering in the day-to-day management of the company, contrary to the SHA and the articles of association, which stipulate that the nominee directors of the investor (respondent No. 3) are non-executive directors and not responsible for day-to-day management. The court found that the petitioner did not provide sufficient evidence of interference by respondent No. 3 in contravention of the articles. The court noted that respondent No. 3, as an investor holding 44.99% shares in respondent No. 1, has the right to nominate directors as per the SHA.

Relief:
The court concluded that the petitioner failed to make out a case of oppression or mismanagement against the respondents. The court dismissed the petition and vacated all interim orders. However, the court acknowledged the petitioner's willingness to exit the company and suggested that the company or any of its shareholders may buy out the petitioner's shares based on a valuation as of the date of filing of the petition, with the valuation to be conducted by an independent valuer in consultation with the petitioner. The costs of the valuer would be shared equally by the petitioner and the company.