1992 (8) TMI 295 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.
2. Validity of the alleged board meetings and resolutions.
3. Legality of the transfer and allotment of shares.
4. Allegations of oppression and mismanagement.
5. Appointment of an independent chairman.

Detailed Analysis:

1. Maintainability of the Petition under Sections 397 and 398 of the Companies Act, 1956:
The petitioner filed petitions under Sections 397/398, 235/237, and 408 of the Companies Act, 1956, alleging oppression and mismanagement. The respondents argued that the petition was not maintainable as it sought rectification of the register of members, which should be pursued under a different provision. They also contended that since a similar suit was pending in the High Court, parallel proceedings could not be initiated. The Board held that the reliefs sought in the present petition were broader in scope than those in the High Court, and the petitioner was entitled to seek these reliefs. Therefore, the petition under Sections 397/398 was deemed maintainable.

2. Validity of the Alleged Board Meetings and Resolutions:
The petitioner challenged the validity of the board meetings allegedly held on September 14, 1990, and November 30, 1990, where crucial resolutions were passed. The petitioner claimed she did not receive notice of these meetings and was not present. The Board found that the minutes of the September 14, 1990, meeting were fabricated, as it was admitted that the petitioner was in Bombay on that date. Consequently, the resolutions passed at these meetings, including the amendment of the articles and the allotment of shares, were declared null and void.

3. Legality of the Transfer and Allotment of Shares:
The petitioner alleged that the allotment of 185 shares to respondent No. 2 and five shares to Rass Intratech Pvt. Ltd. was illegal and violated Article 16(b) of the company's articles of association, which required new shares to be offered to existing shareholders first. The Board found that the allotment of shares was indeed in violation of the articles and void ab initio, as the resolutions passed at the board meeting on September 14, 1990, were invalid. Additionally, the transfer of the petitioner's shares was found to be unauthorized, as the power of attorney given to Shri Chetan Seth did not empower him to transfer her shares, and there was no valid authorization for Shri N.K. Jain to sign on her behalf.

4. Allegations of Oppression and Mismanagement:
The petitioner alleged that respondent No. 2 had taken control of the company's books, fabricated documents, and illegally transferred her shares to reduce her status from majority to minority shareholder. The Board found these allegations substantiated, holding that the actions of respondent No. 2 constituted oppression and mismanagement. The Board noted that the petitioner and her daughters had contributed significantly to the company's funds, while respondent No. 2's financial interest was minimal.

5. Appointment of an Independent Chairman:
Given the findings of oppression and mismanagement, the Board directed the reconstitution of the board of directors and the appointment of an independent chairman to manage the company's affairs. Justice (Retired) M.L. Jain was appointed as the chairman, with instructions to call a meeting of the new board of directors and take possession of the company's books. An extraordinary general meeting was to be convened to elect a new board of directors based on the shareholding prior to September 14, 1990.

Conclusion:
The Board set aside the allotment of 190 shares and the transfer of the petitioner's shares, directing the reconstitution of the board and the appointment of an independent chairman. The petitions under Sections 235/237 and 408 were deemed unnecessary in light of these orders. The judgment emphasized the importance of adhering to the provisions of the Companies Act and the articles of association, ensuring fair treatment of shareholders, and preventing oppression and mismanagement.