2007 (2) TMI 691 - Board - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Company Law Board (CLB) vis-`a-vis the Board for Industrial and Financial Reconstruction (BIFR).
2. Withdrawal of cheque signing powers from Ms. Poonam.
3. Call notices for unpaid amounts on shares.
4. Appointment of four additional directors.
5. Holding of Annual General Meetings (AGMs).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Company Law Board (CLB) vis-`a-vis the Board for Industrial and Financial Reconstruction (BIFR):

The respondents argued that the CLB lacked jurisdiction since the company was under BIFR purview. They cited the Supreme Court's decision in *NGEF Ltd. v. Chandra Developers (P.) Ltd.* and *Kerala State Financial Enterprises Ltd. v. Official Liquidator*, which emphasized that BIFR retains control over a sick company's assets and that SICA provisions override the Companies Act. The petitioners, however, contended that the CLB had jurisdiction for issues not related to the sanctioned scheme (SS) by BIFR. The judgment clarified that the CLB could entertain petitions under sections 397/398 of the Companies Act if the allegations were unrelated to the SS.

2. Withdrawal of cheque signing powers from Ms. Poonam:

Ms. Poonam, a nominee of the petitioners, had been exercising cheque signing powers since the company's inception. The board's decision to withdraw these powers was allegedly due to the office's relocation, but later allegations suggested misuse of funds. The judgment noted that such decisions must be judged by the reasons recorded in the minutes, and additional reasons cannot validate a previously bad decision. The withdrawal of Ms. Poonam's powers was deemed oppressive, as it was not substantiated by the initial reasons given.

3. Call notices for unpaid amounts on shares:

The company issued call notices for unpaid amounts on shares with 9% interest, threatening forfeiture for non-payment. The petitioners argued that this decision was oppressive, especially since the board had previously decided not to charge interest. The judgment acknowledged that while calling for unpaid money is a company's prerogative, doing so under the given circumstances, especially after disputes arose, was oppressive. The board's earlier decision not to charge interest was not considered by the investors' grievance committee, questioning the legitimacy of the interest charge.

4. Appointment of four additional directors:

The appointment of four additional directors was challenged as a move to strengthen the 2nd respondent's control over the board. The judgment noted that while the Articles of Association (AOA) allowed for such appointments without prior agenda, the circumstances suggested an intent to alter the board's balance. The necessity of appointing four directors, especially when the AGM was imminent, was questioned. The judgment concluded that only one additional director might have been justified to avoid a board stalemate, and the appointment of four directors was not bona fide.

5. Holding of Annual General Meetings (AGMs):

The petitioners sought the holding of AGMs for the years 2004-05 and 2005-06. The respondents argued that the AGMs were delayed due to pending accounts and ongoing disputes. The judgment emphasized the statutory obligation to hold AGMs, which are crucial for shareholders' rights. It directed the company to hold AGMs to transact statutory businesses, excluding the adoption of accounts, which was stayed by AAIFR. The judgment allowed for the petitioners to request an independent Chairman for the AGMs if desired.

Conclusion:

The judgment provided specific directions to address the issues raised:
1. Ms. Poonam's cheque signing powers were to be reinstated.
2. The four additional directors were barred from participating in board meetings until confirmed in the AGM.
3. The issue of charging interest on unpaid amounts was to be reconsidered by the board with the special director's participation.
4. The company was directed to convene AGMs for the years 2004-05 and 2005-06 by 31-3-2007, excluding the adoption of accounts.
5. The petitioners were given the liberty to apply for an independent Chairman for the AGMs.

The petition was disposed of in these terms.