2004 (4) TMI 631 - Board - Companies Law

Act of Oppression and Management - Challenged the allotment of further shares by the company on the ground that by the fresh issue of shares they have been reduced to a minority - HELD THAT - Since I have a definite opinion by one expert that the signatures on the minutes were forged and by another an indefinite opinion, I have made my own comparison. On a visual comparison of his signatures on the minutes with the signatures in the various documents attached with the application, I find that there is no similarity in any of the words, Vinod, Kumar and Pathak. In other words, no part of his signature on the minutes is similar to the one found on the documents furnished even by the respondents and therefore, I am prima facie satisfied that the signatures of the deceased on the minutes may not be genuine. Even otherwise, to come to the conclusion that late Vinod Kumar Pathak expressed his unwillingness to infuse funds, there should have been proper material. The minutes dated 16.2.2001, in which the alleged decision to mobilize funds by issue of shares was taken, does not record any details of the financial needs of the company like the quantum of funds required etc for the deceased to express that he was not in a position to infuse any funds. Even the minutes of the next meeting on 15.7.2001 doest not record the quantum of money to be raised. The allotment was purportedly made on 5.11.2001, that is nearly 9 months after the need for funds was felt by the Board as recorded in the minutes of the purported Board meeting on 16.2.2001. There is nothing on the record to show as to how the Board computed the requirement of funds to the extent of 3.2 lakhs to allot 1600 shares to the wives of the 3rd and 4th respondents. The very fact that the Return of allotment was filed only on 25th January 2002, that is after the demise of Vinod Kumar Pathak, would also raise a doubt as to whether the said allotment was made on 5.11.2001. While it is the prerogative of the Board to allot shares, the power should be exercised in the interest of the company and not for any ulterior purpose. In the present case, by this allotment, the existing majority has been converted into a minority and a new majority has been created in favour of the respondents, which is a grave act of oppression and is an act in breach of the fiduciary duties of the directors. Thus, I declare by allotting 3200 shares to the respondents group, the Board had acted in a manner oppressive to the majority shareholders and in breach of the fiduciary duties of the Directors. Therefore, I direct that the said allotment shall stand cancelled with immediate effect. The company shall refund the amount paid by these two allottees at the earliest and reduce its paid up capital to that extent. While canceling the allotment, I have noted that the two allottees are not parties to the proceedings. Since they are not third parties but are the wives of the directors who had allotted the shares, their presence is not considered necessary, especially when the allotment is cancelled on the ground that the directors had acted in breach of their fiduciary duties to the company and the members. The petition is disposed of in terms of paragraph 10 ante with no order as to cost.

Summary

Issues Involved:
The judgment involves issues related to challenging the allotment of further shares by a company, reduction of petitioners' group to a minority, refusal to transmit shares, alleged oppression by creating a new majority, authenticity of deceased's signatures on meeting minutes, fiduciary duties of directors, cancellation of share allotment, and attempts for amicable settlement.

Allotment of Further Shares:
The petitioners, holding majority shares, challenged the allotment of further shares by the company, claiming it reduced them to a minority. The respondents argued that the allotment was done with the consent of the deceased majority shareholder, supported by meeting minutes. Dispute arose over the authenticity of deceased's signatures on the minutes, leading to expert opinions. The Chairman found discrepancies in signatures, lack of financial details in minutes, and delayed filing of allotment return, concluding that the allotment was oppressive and in breach of fiduciary duties.

Transmission of Shares:
The petitioners sought transmission of shares held by the deceased majority shareholder to the 1st petitioner as his legal heir. The company initially refused but later complied after a direction from the Bench. The respondents contended that the transmission had been completed and the petitioners were also taken on the Board of the company. This issue was resolved through compliance with the transmission request.

Authenticity of Signatures:
Dispute arose regarding the authenticity of deceased's signatures on meeting minutes where share allotment decisions were made. Handwriting experts provided conflicting opinions on the genuineness of the signatures. The Chairman conducted a visual comparison and found no similarity between the signatures on minutes and other legal documents, leading to a prima facie conclusion of forged signatures.

Cancellation of Share Allotment:
Considering the discrepancies in signatures, lack of financial details, and breach of fiduciary duties, the Chairman declared the allotment of 3200 shares to the respondents as oppressive to the majority shareholders. The allotment was ordered to be cancelled, with a directive for the company to refund the amount paid by the allottees and reduce its paid-up capital accordingly. The presence of the allottees in the proceedings was deemed unnecessary.

Amicable Settlement Attempts:
Efforts were made to settle the disputes amicably by suggesting a division of the company's assets, but the parties could not reach a consensus. The judgment concluded by disposing of the petition in line with the cancellation of the share allotment, with no order as to costs.