2005 (10) TMI 573 - Board - Companies Law

Summary

Issues Involved:
1. Issue of 9,000 equity shares of the Company in favour of the fifth respondent.
2. Sale of the Company's properties by respondent Nos. 2 to 4.

Detailed Analysis:

Issue 1: Issue of 9,000 Equity Shares to the Fifth Respondent

The petitioners contended that the 9,000 shares issued to the fifth respondent were not supported by consideration. They argued that the fifth respondent failed to fulfill its obligations under the agreement dated 04.10.1975, which stipulated the supply and setup of plant and machinery for the Company. The agreement required the plant to process 1,00,000 coconuts per day, a target never achieved. The petitioners claimed that the shares were issued based on mere book entries and lacked actual consideration, thus seeking their cancellation.

The respondents countered that the shares were issued in 1976 as part satisfaction of the amount due under the agreement, and the petitioners' delay of 28 years in raising this issue should bar their claim. They argued that the CLB is not empowered under Section 402 to cancel shares and that the proper remedy for defective machinery would be a claim for damages, not share cancellation.

The CLB held that the grievance regarding the shares issued in 1976 falls outside the scope of Sections 397 and 398, which are intended to address ongoing oppression or mismanagement, not past and concluded acts. The petitioners' claim was deemed to arise from a contractual breach, which should be addressed in a competent court, not under the CLB's jurisdiction.

Issue 2: Sale of the Company's Properties

The petitioners alleged that respondent Nos. 2 to 4 were attempting to sell the Company's properties at a meager price through private negotiations without member approval, thereby causing prejudice to the Company and its shareholders. They sought to terminate any agreements for such sales.

The respondents argued that the Company had been non-functional for over two decades, leading to recovery proceedings by financial institutions. They asserted that the sale of properties was necessary to liquidate liabilities and was approved by the general body, as evidenced by the notice dated 16.09.2002 and the minutes of the general meeting on 06.10.2002. The Kerala High Court had directed that the properties could be sold only after general body approval.

The CLB noted that the petitioners had previously sought an injunction against the sale in a civil suit, which was dismissed, and the Kerala High Court had affirmed that sales could proceed only with general body approval. The CLB took on record the respondents' statement that they would not sell the properties without such approval and directed them to ensure the best possible price, safeguarding the interests of minority shareholders.

Conclusion

The company petition was disposed of with the following directions:
- The grievance regarding the shares issued to the fifth respondent must be pursued in a competent court, not under Sections 397 and 398.
- The sale of the Company's properties must comply with the Kerala High Court's order, requiring general body approval and ensuring the best possible price, without prejudice to the rights of financial institutions and statutory authorities.

All interim orders were vacated, and no costs were awarded.