2008 (6) TMI 620 - Board - Companies Law

Summary

Issues Involved:
1. Validity of the Board Meeting held on 05.02.2005.
2. Validity of the appointment of respondents 2 and 4 as directors.
3. Voting rights of the second respondent.
4. Operation of the company's bank account by respondents 2 and 4.
5. Forced transfer of 9.50% shares by the petitioner to the second respondent.
6. Alienation or encumbrance of company assets by the respondents.
7. Compensation for losses caused to the company by the respondents.
8. Reconstitution of the Board of Directors.
9. Preparation of a scheme for the administration of the company.

Detailed Analysis:

1. Validity of the Board Meeting held on 05.02.2005:
The petitioner alleged that the Board meeting held on 05.02.2005 was invalid due to coercion and fraud. The petitioner claimed that he was forced to sign documents under threat. However, the records, including an affidavit sworn by the petitioner, indicated that the petitioner had consented to the decisions made during the meeting without coercion. The Board minutes dated 05.02.2005 confirmed the appointment of the second respondent as Managing Director and the fourth respondent as director. The petitioner's subsequent actions were consistent with the Board's decisions, indicating his acceptance of the resolutions.

2. Validity of the Appointment of Respondents 2 and 4 as Directors:
The petitioner contested the validity of the appointments of respondents 2 and 4 as directors, citing non-compliance with the company's Articles of Association and the lack of proper procedure. The Board minutes and other documents, however, confirmed their appointments. The petitioner's own affidavit and actions post-appointment further validated these appointments. The court found no grounds to invalidate the appointments.

3. Voting Rights of the Second Respondent:
The petitioner sought to restrain the second respondent from exercising voting rights at general meetings. However, the court did not find sufficient grounds to restrict the second respondent's voting rights, as the allegations of fraud and coercion were not substantiated in a manner that could be adjudicated in a summary proceeding.

4. Operation of the Company's Bank Account by Respondents 2 and 4:
The petitioner claimed that respondents 2 and 4 unlawfully took control of the company's bank account. The Board minutes and subsequent actions by the petitioner indicated that the change in signatories was agreed upon by the petitioner. The court upheld the validity of the resolutions authorizing respondents 2 and 4 to operate the bank account.

5. Forced Transfer of 9.50% Shares by the Petitioner to the Second Respondent:
The petitioner alleged that he was forced to transfer 9.50% of his shares to the second respondent. The court found that the petitioner's consent to the transfer was documented and that the petitioner had acted upon this consent. The court did not find sufficient evidence to support the claim of coercion.

6. Alienation or Encumbrance of Company Assets by the Respondents:
The petitioner sought to restrain the respondents from alienating or encumbering the company's assets. The court found that the respondents had mismanaged the company's assets, leading to a significant shortage of stock. The respondents were held accountable for the shortfall in stock and were ordered to reimburse the company.

7. Compensation for Losses Caused to the Company by the Respondents:
The court held the respondents responsible for the mismanagement and misappropriation of company assets. The respondents were ordered to reimburse the company for the shortfall in stock value amounting to Rs. 36,91,120.

8. Reconstitution of the Board of Directors:
The court did not find sufficient grounds to reconstitute the Board of Directors. However, it ordered the petitioner to exit the company by selling his shares to the respondents at a fair value determined by an independent valuer.

9. Preparation of a Scheme for the Administration of the Company:
The court did not find it necessary to prepare a new scheme for the administration of the company. Instead, it focused on resolving the disputes by facilitating the petitioner's exit from the company and ensuring compensation for the losses caused by the respondents.

Conclusion:
The court ordered the impugned allotments of shares to be set aside and directed the respondents to reimburse the company for the shortfall in stock value. The petitioner was directed to exit the company by selling his shares to the respondents at a fair value. The court also upheld the validity of the Board meeting held on 05.02.2005 and the appointments of respondents 2 and 4 as directors. The respondents were restrained from selling the company's immovable properties until the petitioner's exit was completed.