2009 (5) TMI 987 - Board - Companies Law

Summary

Issues involved: Illegal removal of director u/s 283(1)(g) of the Companies Act, 1956, oppression against the petitioner, application of Section 397/398 in closely held companies, absence of proper notices for board meetings, removal of director in a quasi partnership, restoration of directorship, suggestion for share purchase.

Illegal Removal of Director u/s 283(1)(g): The petitioner, holding one-third of the paid-up capital, was removed as a director under Section 283(1)(g) of the Companies Act, 1956. Allegations were made that the petitioner was excluded from the company's affairs by the second and third respondents. False police complaints were filed against the petitioner, claiming he took confidential files and stock from the company. The petitioner was unaware of alleged board meetings where his removal was decided. The respondents failed to provide evidence of issuing notices for these meetings. The removal of the petitioner as a director was deemed oppressive and not bona fide. The Chairman held that the application of Section 283(1)(g) against the petitioner was unjust, and his directorship deserved to be reinstated.

Oppression Against the Petitioner: The respondents accused the petitioner of spreading rumors about the company's closure, instigating staff, and removing company files and goods. They claimed the petitioner did not attend board meetings, leading to his automatic removal as a director. The respondents filed Form No. 32 with the Registrar of Companies to notify the petitioner's removal. The petitioner denied these allegations and stated there was no concrete evidence of his misconduct. The Chairman noted the loss of trust and confidence among the parties in the quasi partnership, leading to the petitioner's removal. However, he found the application of Section 283(1)(g) against the petitioner to be unjust and oppressive, as there was no conclusive proof of wrongdoing by the petitioner.

Application of Section 397/398 in Closely Held Companies: In closely held companies like the one in question, where all three shareholders were also directors, directorial complaints can be entertained under Section 397/398 of the Act. The company, converted from a partnership, was considered a quasi partnership due to the close relationship among the shareholders. In such cases, complaints regarding directorship can be addressed under Section 397/398, even if they are not typically entertained in other company structures.

Absence of Proper Notices for Board Meetings: The respondents alleged that notices were issued for board meetings which the petitioner failed to attend, resulting in his removal as a director. However, the petitioner claimed he did not receive any notices for these meetings. The respondents did not provide documentary evidence of issuing notices or minutes of the alleged meetings. The Chairman found the lack of proof of notice issuance and meeting minutes, concluding that the application of Section 283(1)(g) and the petitioner's removal were unjustified.

Restoration of Directorship: Despite holding that the petitioner's directorship deserved to be reinstated, the Chairman noted the strained relationship among the parties. To avoid escalating disputes, he suggested that all three shareholders bid for the company, with the successful bidder taking over. The petitioner agreed to this proposal, but the respondents did not. Considering the strained relationship and the petitioner's minority shareholder status, the Chairman directed the respondents to purchase the petitioner's shares at a fair value determined by an independent valuer. The matter was scheduled for further discussion to appoint a chartered accountant for this purpose.

The petition was disposed of with no order as to costs, emphasizing the need for fair resolution in the best interest of the company and shareholders.