2001 (2) TMI 1042 - Board - Companies Law

Issues Involved:
1. Reduction of the petitioners' shareholding percentage.
2. Non-delivery of share certificates.
3. Non-sending of notices for general body meetings.
4. Falsification of company records.
5. Unauthorized conversion of book debts into equity.
6. Underselling of company goods and misappropriation of funds.
7. Disposal of company assets and resultant mismanagement.
8. Alleged breach of fiduciary duties by the 2nd respondent.
9. Request for winding up of the company on just and equitable grounds.

Detailed Analysis:

1. Reduction of the Petitioners' Shareholding Percentage:
The petitioners alleged that their shareholding percentage was reduced due to the allotment of shares exclusively to the respondents' group, without offering shares to the petitioners as required under Section 81 of the Companies Act. The respondents contended that the allotments were made to augment company resources and were approved by the general body in an EOGM held on 5-2-1990. The Board found that the exclusion of the petitioners from share allotments in a family company constituted an act of oppression. However, considering the company's need for funds and the respondents' willingness to restore the petitioners' original shareholding percentage, the Board did not declare the allotments invalid but directed the respondents to offer shares to the petitioners to restore their original percentage holding.

2. Non-delivery of Share Certificates:
The petitioners claimed that they had not received share certificates for their shares, which the company denied. The Board noted that the issue had become a prolonged legal battle and found the company's stand unreasonable. The Board directed the company to issue duplicate share certificates to the petitioners without observing the formalities required under the rules for issuing duplicate certificates.

3. Non-sending of Notices for General Body Meetings:
The petitioners alleged that they were not sent notices for general body meetings, denying them knowledge of the company's performance. The respondents claimed that notices were sent and that the petitioners' father, who was the company chairman until 1994, was aware of the meetings. The Board directed the company to send all future notices for general body meetings to the petitioners by registered post to ensure compliance with statutory requirements.

4. Falsification of Company Records:
The petitioners accused the 2nd respondent of fabricating company records, citing an affidavit stating that certain records were lost, and an FIR was filed. The respondents clarified that the lost records pertained to the period before 1989 and that the records produced in the proceedings were for periods after 1989. The Board found the petitioners' allegations unsubstantiated and noted that the records were authenticated by the ROC before the petition was filed.

5. Unauthorized Conversion of Book Debts into Equity:
The petitioners challenged the conversion of dues payable to Rajaram Maize Products into equity shares without their consent. The Board noted that the petitioners had already initiated appropriate proceedings for recovery of the amount and refrained from further adjudicating on this matter.

6. Underselling of Company Goods and Misappropriation of Funds:
The petitioners alleged that the 2nd respondent undersold company products and siphoned off funds. The Board found the allegations unsubstantiated, noting that the petitioners failed to provide concrete details to support their claims. The Board accepted the respondents' explanation that the price differences were due to various factors, including the quality and location of the plants.

7. Disposal of Company Assets and Resultant Mismanagement:
The petitioners claimed that the company was being turned into a shell by selling its assets. The Board noted that it had earlier permitted the company to sell unusable assets to meet financial needs and found no evidence that the company had sold assets without need or in violation of its orders. The Board left the decision to sell the Bangalore unit to the company, subject to considering the petitioners' and workmen's objections.

8. Alleged Breach of Fiduciary Duties by the 2nd Respondent:
The petitioners accused the 2nd respondent of acting against the company's interests by benefiting himself. The Board found that the 2nd respondent had disclosed his interest in transactions with Rajaram & Bros. and that the other directors were aware of his interest. The Board concluded that the non-disclosure did not attract disqualification under Section 283(1)(i).

9. Request for Winding Up of the Company on Just and Equitable Grounds:
The petitioners sought a direction for winding up the company due to its financial position. The Board rejected this prayer, stating that such a request was beyond the scope of a petition under Sections 397/398 and that the majority shareholders did not desire winding up. The Board emphasized that proceedings under these sections aim to redress grievances without resorting to winding up.

Conclusion:
The Board directed the company to issue duplicate share certificates to the petitioners, send future notices for general body meetings by registered post, and offer shares to the petitioners to restore their original percentage holding. The Board suggested that the respondents consider purchasing the petitioners' shares at a fair value determined by the statutory auditors but did not mandate it due to the respondents' financial difficulties. The Board dismissed the petitioners' request for winding up the company and disposed of the petition without any order as to costs.

← Previous Next →