2008 (4) TMI 811 - Board - Companies Law

Issues Involved:
1. Authority of the third respondent as a director.
2. Validity of the sale deeds executed by the third respondent.
3. Legality of Form No. 32 filed by the respondents.
4. Scheme for vesting properties in an administrator.
5. Validity of further allotment of shares.
6. Winding up of the company and distribution of proceeds.

Issue-wise Detailed Analysis:

1. Authority of the Third Respondent as a Director:
The petitioners sought a declaration that the third respondent had no authority to represent as a director of the company and execute the sale deeds. The court found that the third respondent had resigned from the office of director and managing director with effect from August 14, 2000. The re-appointment of the third respondent as a director on March 14, 2005, was disputed and not substantiated by reliable evidence. Therefore, the third respondent's authority to execute the sale deeds was questionable.

2. Validity of the Sale Deeds:
The petitioners challenged the validity of the sale deeds dated April 28, 2005, executed by the third respondent, claiming they were null and void. The court observed that the properties were sold for an amount far below the market value, causing significant losses to the company. The petitioners had indicated a ready offer of Rs. 1.65 crores for the properties, which was not contested by the respondents. The court concluded that the sale of the properties for Rs. 27.52 lakhs was a breach of trust and ordered respondents Nos. 2 to 6 to compensate the company for the losses incurred.

3. Legality of Form No. 32:
The petitioners contended that Form No. 32, notifying their resignation from the directorship, was illegal and void ab initio. The court found that the petitioners never tendered any resignation and that the filing of Form No. 32 was a clear case of falsification of documents by respondents Nos. 2 to 6. The court declared Form No. 32 as illegal and void.

4. Scheme for Vesting Properties in an Administrator:
The petitioners sought a scheme for vesting the properties of the company in an administrator for distribution to all shareholders. The court directed the board of directors to distribute the sale proceeds of the properties to all shareholders in proportion to their shareholding, after meeting statutory liabilities and expenses.

5. Validity of Further Allotment of Shares:
The petitioners challenged the further allotment of shares made on various dates, claiming they were illegal and void. The court found that the allotments were discriminatory and lacked justification. The resolutions for the allotments did not provide any reasons or requirements for additional funds. The court set aside all the allotments as null and void and directed the company to rectify the register of members accordingly.

6. Winding Up of the Company and Distribution of Proceeds:
The petitioners sought the winding up of the company and distribution of proceeds among shareholders. The court directed respondents Nos. 2 to 6 to compensate the company for the losses incurred due to the sale of properties. The board of directors was instructed to distribute the sale proceeds among shareholders before availing the benefit of the "Simplified Exit Scheme, 2005" for striking off the company's name from the register.

Conclusion:
The court, exercising its powers under sections 397, 398, 402, and 406 read with section 543, directed the following:
1. Induction of the petitioners into the board of directors.
2. Setting aside the allotment of shares made on June 29, 2002, June 30, 2003, December 30, 2004, and March 14, 2005.
3. Rectification of the register of members.
4. Contribution of Rs. 1,40,23,200 by respondents Nos. 2 to 6 to the company's assets as compensation.
5. Distribution of sale proceeds of the properties among shareholders.
6. Forwarding a copy of the order to the Registrar of Companies for appropriate action.

The company petition and connected applications were disposed of without any order as to costs, and all interim orders were vacated.

← Previous Next →