2009 (7) TMI 1360 - Board - Companies Law

Summary

Issues Involved:
1. Alleged illegal issuance and allotment of 3,000 shares.
2. Appointment of the fourth respondent as the managing director.
3. Validity of annual general meetings for the years 2005-06 and 2006-07.
4. Allegations of misconduct and diversion of funds by the petitioners.

Summary:

1. Alleged Illegal Issuance and Allotment of 3,000 Shares:
The petitioners alleged that respondents Nos. 2 to 6 illegally issued 3,000 shares of Rs. 100 each at a premium of Rs. 400 per share to respondents Nos. 9 to 13. The petitioners sought a declaration that the allotment of these shares was illegal and void. The respondents claimed the shares were issued to raise funds to pay farmers for potatoes stored in the cold storage. However, the Board found that the respondents failed to provide adequate documentation to support this claim. The bank statements provided by the respondents showed suspicious transactions, indicating possible rotation of funds. The Board concluded that the allotment of shares was dubious and declared it null and void.

2. Appointment of the Fourth Respondent as the Managing Director:
The petitioners challenged the appointment of the fourth respondent as the managing director, alleging it was done without proper notice to the petitioner-directors. The Board found that there was no evidence of notice being given for the board meeting on February 5, 2007, where the appointment was allegedly made. Additionally, Form No. 32 for the appointment was filed belatedly on October 25, 2007, raising doubts about the validity of the appointment. The Board declared the appointment null and void.

3. Validity of Annual General Meetings for the Years 2005-06 and 2006-07:
The petitioners contended that the annual general meetings for the years 2005-06 and 2006-07 were held without proper authority and notice. The Board noted that the annual general meeting for 2004-05 was convened on April 21, 2007, under the supervision of a special officer appointed by the Board. The Board found no evidence that the respondents had sent notices for the alleged annual general meetings for 2005-06 and 2006-07. Consequently, the Board declared these meetings and the decisions taken therein, including the appointment of respondent directors, as null and void.

4. Allegations of Misconduct and Diversion of Funds by the Petitioners:
The respondents accused the petitioners of diverting funds and acting against the interests of the company. They alleged that the fourth petitioner had diverted Rs. 5.18 lakhs to Cameo Steel P. Ltd. and withdrawn Rs. 7.44 lakhs, which remained un-refunded. The respondents had filed criminal cases against the petitioners for these actions. The Board noted these allegations but focused on the main issues of share allotment and appointments.

Conclusion:
The Board canceled the allotment of the impugned 3,000 shares and declared all decisions taken by the respondents, including the annual general meetings for 2005-06 and 2006-07, as null and void. The appointment of the fourth respondent as the managing director was also declared null and void. The petitioners' suggestion to direct the respondents to sell their shares to the petitioners was not accepted due to the lack of identification of all shareholders in the respondents' group. However, the respondents were given the liberty to express their intention to sell their shares to the petitioners, with the price to be determined by an independent valuer if needed. The petition was disposed of in these terms, reserving the right to appoint a valuer if an application is made after the respondents' group exercises the option to sell their shares.