2006 (11) TMI 684 - Board - Companies Law

Issues Involved:
1. Illegal sale of the company's landed property.
2. Incurring and debiting personal and fictitious expenditure to the profit and loss account of the company.
3. Illegal forfeiture and re-issue of the forfeited shares for personal gains.
4. Misappropriation of funds of the company.
5. Illegal removal of the directors.
6. Non-maintenance of any minutes book of the meeting of the board of directors.

Detailed Analysis:

1. Illegal Sale of the Company's Landed Property:
The petitioners alleged that the second respondent sold part of the company's landed property at a low price and misappropriated the unaccounted amount. The company acquired the property for establishing a stock exchange, a plan that was abandoned due to regulatory denial. The property was sold at Rs. 2,200 per sq. yard despite an offer of Rs. 3,200 per sq. yard from the petitioners. The respondents argued that the sale was authorized by the board and necessitated by legal and market challenges. The court found that the sale was conducted within the board's authority and at a reasonable price given the circumstances, confirming the sale of 570 sq. yards.

2. Incurring and Debiting Personal and Fictitious Expenditure:
The petitioners claimed that the second respondent debited personal and fictitious expenses to the company's profit and loss account, inflating administrative expenses. The respondents countered that all expenses were legitimate and approved by the board. The court observed that the company's audited accounts, approved by the members, did not reflect any personal expenses. The petitioners failed to provide concrete evidence of fictitious expenses, and the court dismissed this claim.

3. Illegal Forfeiture and Re-Issue of Forfeited Shares:
The petitioners contended that the re-issue of forfeited shares was illegal and aimed at increasing the second respondent's control. The respondents maintained that the forfeiture and re-issue were conducted as per the company's articles and approved by the board. The court noted that the forfeiture and re-issue were past and concluded transactions, reflected in the company's audited accounts and approved by the members. The court found no illegality in the process and dismissed the petitioners' claims.

4. Misappropriation of Funds:
The petitioners accused the second respondent of misappropriating rental income from M/s Kakatiya Public School. The respondents denied any lease arrangement with the school and provided an affidavit from the school authorities. The court found no concrete evidence of misappropriation and dismissed this claim.

5. Illegal Removal of Directors:
The petitioners alleged that the second respondent illegally removed directors and appointed his relatives to the board. The respondents argued that the removals were due to non-attendance at board meetings, as per Section 283(1)(g) of the Companies Act. The court found that the company failed to establish proper service of notice for the board meetings, rendering the removals invalid. The appointment of the second respondent's daughter was also invalid due to lack of quorum.

6. Non-Maintenance of Minutes Book:
The petitioners claimed that the second respondent did not maintain the minutes book of the board meetings. The respondents produced the original minutes, which were not numbered but signed by the chairman. The court noted that the minutes, though not conforming to Section 193, were maintained consistently since the company's inception. The court rejected the petitioners' plea regarding the validity of the minutes.

Conclusion:
The court directed the company to convene a general meeting to elect a new board of directors, supervised by a retired judge. The new board was tasked with managing the company's affairs, selling the landed property, and distributing the proceeds among shareholders. The sale of 570 sq. yards was confirmed, and all interim orders were vacated.

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