2004 (10) TMI 619 - Board - Companies Law

Summary

Issues Involved:
1. Legality of the resolution passed in the 14th Annual General Meeting to reclassify the preference shares into equity capital and amend the articles and memorandum of association.
2. Legality of the allotment of 1500 equity shares to M/s Complex Trading Co. Ltd.

Issue-Wise Detailed Analysis:

1. Legality of the Resolution Passed in the 14th Annual General Meeting:

The petitioners argued that the reclassification of the capital and the issuance of shares to a company owned and controlled by the respondents reduced their shareholding from a majority of 51.53% to a minority of 42.75%. They claimed that no notice or agenda was given to them regarding the concerned Board Meeting and the shareholders' meeting. The petitioners discovered through an inspection on 21.12.98 that no Board Meeting had been held after 10.3.98.

The respondents contended that the Board Meetings were held on 01.09.98 and 20.11.98, where a resolution for the allotment of 1500 equity shares was made. This resolution was approved in the AGM on 30.09.98. The petitioner submitted an affidavit with a certified true copy of his passport, showing he was out of India from 11.8.1998 to 4.9.1998, and thus, could not have attended the Board Meeting on 1.9.98. The petitioner also claimed he was shown present in the AGM on 30.9.98, 30.9.99, and 30.9.2000, despite being out of the country.

The respondents failed to provide evidence that notice of meetings was sent to the petitioner or that he was present in these meetings, except for his name being included in the minutes signed by the Chairman. No attendance register was produced to substantiate these facts. In the absence of contrary evidence, the Board concluded that the petitioner was not present in the 14th AGM held on 30.9.98 and the Board meetings on 1.9.98 and 20.11.98. Consequently, the decisions taken in these meetings, including the reclassification of shares and amendments to the Memorandum and Articles of Association, were declared null and void.

2. Legality of the Allotment of 1500 Equity Shares to M/s Complex Trading Co. Ltd:

The petitioners argued that the allotment of 1500 shares to Complex Trading Pvt. Ltd., owned and controlled by the respondent group, was invalid as no notice of any meeting was received by them, and no such resolution allotting the shares was passed. The respondents contended that the allotment was made pursuant to a family settlement and had the full concurrence of the petitioner, who did not raise any objections for over four years.

Given that the resolution passed in the 14th AGM was declared null and void, the allotment of 1500 equity shares to M/s Complex Trading Co. Ltd. automatically falls. However, recognizing the irreconcilable differences between the parties, the Board proposed that either party should be given an option to exit the company by selling their shares at a valuation based on the balance sheet as of 31.3.98. An independent valuer would be appointed by the Board in consultation with both parties to determine the share value. The status quo regarding the properties of the company would be maintained until the implementation of this order.

Conclusion:
The petition was disposed of with the declaration that the 14th AGM and the decisions taken therein were illegal and null and void. The allotment of 1500 equity shares to M/s Complex Trading Co. Ltd. was also invalidated. The Board provided an option for either party to exit the company on a fair valuation of their shares. No orders as to costs were made.