1999 (4) TMI 639 - Board - Companies Law

Summary

Issues Involved:
1. Alleged oppressive allotment of shares.
2. Validity of board decisions and meeting notices.
3. Allegations of embezzlement and misappropriation of funds.
4. Determination of appropriate relief and valuation of shares.

Detailed Analysis:

1. Alleged Oppressive Allotment of Shares:
The petitioners alleged that the respondents issued 2,600 shares to themselves with the intention of reducing the petitioners' group from majority to minority. The board had initially decided on April 8, 1996, to distribute the undistributed shares equally among all members. However, in the board meeting held on May 11, 1997, the shares were allotted exclusively to respondents Nos. 2 and 3, which altered the majority status. The petitioners argued that this allotment was done with a mala fide intention and without any requirement for additional funds, as the shares were issued in adjustment of unsecured loans. The petitioners cited Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. to argue that such allotment is void if done for collateral purposes.

2. Validity of Board Decisions and Meeting Notices:
The respondents contended that the allotment was lawful and aimed at increasing the paid-up capital for availing loans from financial institutions. They argued that the board had the authority under Article 3 of the articles of association to allot shares as it deemed fit. However, the petitioners highlighted that the first petitioner, a director, was not given notice of the board meeting, rendering the decision invalid. The board's power to alter previous decisions was acknowledged, but the lack of notice to all directors invalidated the allotment decision.

3. Allegations of Embezzlement and Misappropriation of Funds:
The petitioners accused the respondents of embezzling company funds, presenting documents to support their claims. Conversely, the respondents accused the first petitioner of misappropriation, fabrication of accounts, and illegal acquisition of shares. The respondents also alleged that the first petitioner diverted company funds for personal benefit and used these funds to acquire shares, gaining majority control through illegal means. Both parties presented counter-allegations, complicating the matter further.

4. Determination of Appropriate Relief and Valuation of Shares:
The Company Law Board (CLB) recognized the irreconcilable differences between the petitioners and respondents, making it impossible for them to continue together. Despite an earlier consent order for the respondents to sell their shares to the petitioners, the bank's refusal to substitute collateral securities prevented its execution. The CLB concluded that the petitioners should sell their shares to the respondents to protect the company's interests, especially given ongoing proceedings before the Debts Recovery Tribunal. The CLB decided that the shares should be valued by an independent valuer, as per Article 13 of the articles of association, and invited both parties to suggest an agreeable valuer.

Conclusion:
The petition was disposed of with the directive to appoint an independent valuer for determining the fair value of the shares. The parties were instructed to appear before the CLB to suggest a mutually agreeable valuer, failing which the CLB would appoint one. No order as to costs was made.