2006 (8) TMI 654 - Board - Companies Law

Summary

Issues Involved:
1. Illegal increase of authorized share capital.
2. Illegal allotment of equity shares.
3. Non-delivery of share certificates.
4. Non-sending of notices for general meetings.
5. Non-sending of quarterly results and annual accounts.

Detailed Analysis:

1. Illegal Increase of Authorized Share Capital:
The petitioner contended that the increase in authorized share capital from Rs. 125 lakhs to Rs. 225 lakhs was done without their knowledge and consent, which was a breach of trust and mutual agreement. The respondents argued that the increase was necessary due to financial losses and pressure from the bank to enhance promoter contribution towards equity. However, the court found that the board of directors did not resolve to convene the extraordinary general meeting for enhancing the authorized capital or issue any notice for the meeting, which was a violation of Section 193 of the Companies Act. The increase in authorized share capital was declared illegal and void.

2. Illegal Allotment of Equity Shares:
The petitioner alleged that the allotment of ten lakh equity shares to the fourth respondent was done without following legal procedures, reducing their majority shareholding from 90.91% to 47.6%. The respondents claimed that the allotment was necessary to meet the bank's requirements and maintain the company's financial health. The court observed discrepancies in the minutes of the board meetings and found that the allotment was done without proper authorization and for purposes other than the company's benefit. The allotment of shares was set aside as wrongful and illegal.

3. Non-Delivery of Share Certificates:
The petitioner argued that the company failed to issue share certificates for their holdings despite repeated demands. The respondents did not provide a satisfactory explanation for this failure. The court directed the company to deliver share certificates to the petitioner within 30 days of the receipt of the order.

4. Non-Sending of Notices for General Meetings:
The petitioner claimed that they did not receive notices for general meetings, including annual general meetings, since March 2000. The respondents produced a certificate of posting to establish service of notice, but the court found that mere production of the certificate of posting did not necessarily mean conclusive service of notice. The court emphasized the mandatory requirement of serving notice under Section 172 of the Companies Act and found that the non-sending of notices invalidated the resolutions passed at such meetings.

5. Non-Sending of Quarterly Results and Annual Accounts:
The petitioner stated that they were not sent quarterly results and annual accounts since March 2000, keeping them in the dark about the company's affairs. The respondents did not address this issue adequately. The court recognized the petitioner's right to be informed about the company's financial status and directed the company to ensure proper communication of such information in the future.

Conclusion:
The court declared the increase in authorized share capital and the allotment of shares to the fourth respondent as illegal and void. It directed the company to deliver share certificates to the petitioner and ensure proper communication of notices and financial information. The court also emphasized the need for proportional representation of the respondent group in the board of directors to manage the company's day-to-day affairs.