2002 (1) TMI 1317 - Board - Companies Law

Summary

Issues Involved:
1. Conversion of majority shareholders into a minority.
2. Change in the composition of the Board of Directors.
3. Allegations of gross mismanagement in the affairs of the company.
4. Validity of the transfer of 4 lakh shares.
5. Maintainability of the petition u/s 399 of the Companies Act, 1956.
6. Allegations of parallel proceedings.
7. Relief sought by the petitioners.

Summary:
1. Conversion of Majority Shareholders into a Minority:
The petitioners alleged that the issuance of further shares converted their group from a majority to a minority. The respondents argued that the issuance of shares was necessary for raising funds for the company and had the knowledge and consent of the petitioners. The Board found that the issuance of shares on 27-7-1997 and 1-9-1998, without proper notice to the petitioners, was an act of oppression as it reduced the petitioners' shareholding from 52.46% to 34.45%.

2. Change in the Composition of the Board of Directors:
The petitioners contended that the appointment of additional directors on 27-7-1997 was oppressive and aimed at gaining majority control on the Board. The Board found that the appointment of additional directors without proper notice to the petitioners was not bona fide and was intended to marginalize the petitioners' group.

3. Allegations of Gross Mismanagement:
The petitioners alleged financial mismanagement by the respondents, citing adverse comments in the internal audit report and misuse of banking facilities. The Board noted these allegations but did not delve into them in detail due to the relief granted.

4. Validity of the Transfer of 4 Lakh Shares:
The respondents challenged the validity of the transfer of 4 lakh shares to the 1st petitioner, citing non-compliance with Section 108 of the Companies Act, 1956. The Board held that the 1st petitioner was the rightful owner of the shares as the company had registered the transfer, endorsed the share certificates, and communicated the same to Kero GmbH.

5. Maintainability of the Petition u/s 399:
The respondents argued that the petition was not maintainable as the petitioners did not hold the requisite percentage of shares. The Board held that the petitioners fulfilled the requirements of Section 399, considering the 4 lakh shares held by the 1st petitioner.

6. Allegations of Parallel Proceedings:
The respondents contended that the petitioners had filed a civil suit with similar allegations and sought a stay on the present proceedings. The Board found no commonality between the civil suit and the present petition and held that the petitioners were not pursuing parallel proceedings.

7. Relief Sought by the Petitioners:
The petitioners sought either the cancellation of further shares issued after 31-3-1997 or a refund of their investment. The Board directed the respondents to purchase the shares held by the petitioners and refund the share application money. The valuation of shares was to be based on the net worth of the company as on 31-3-1998, and the statutory auditors were directed to compute the fair value. The payment was to be made in installments by 30-6-2003, with the option to purchase the shares either by the 2nd respondent and his group or by the company.

Conclusion:
The Board found acts of oppression against the petitioners and directed the respondents to purchase the petitioners' shares and refund the share application money, ensuring a fair resolution of the disputes in the interest of the company and its shareholders.