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2015 (12) TMI 1857 - Board - Companies LawOppression and mismanagement - allotment of shares - appointment of two directors and alleged removal of managing director at the board meetings - Whether the Board resolution passed on 27.10.2004 duly appointing two new directors is legal and valid? - HELD THAT - The petitioner was present in the Board meeting dated 27.10.2004 and he is party to the decisions including appointment of two directors on the Board of the R1 Company, therefore the petitioner is acquiesced to all the decisions taken in the Board meetings, Admittedly the company is having four directors. Therefore the petitioner now cannot contend that he has not aware of the above Board meeting which is completely blatant lie - the meeting dated 27.10.2004 is legal and valid. Whether the allotment of shares made on 05.12.2004 to the extent of 15,000 equity shares, 05.01.2005 to the extent of 10,000 equity shares and on 20.02.2005 to the extent of 15,000 equity shares are legal and valid? - HELD THAT - It is unequivocal that the petitioner subscribed to the 5000 equity shares of the company by investing ₹ 50,000/-. It is also evident from the balance sheet that the contribution to the shares by the petitioner only to the extent of ₹ 50,000/-. The annual returns for the year ended 30.09.2004 reflects the shareholding pattern of the petitioner and the 2nd respondent. The first allotment of shares was made on 05.12.2004 to an extent of 15.000 equity shares of ₹ 10/- each. The respondents have filed Form 2 showing the allotment of shares to the persons as described in form 2. From the perusal of minutes of the Board meeting dated 05.12.2004 it is also evident that the shares have been allotted to an extent of 15,000 equity shares to various persons. The respondents timber contended that the petitioner vide his letter dated 05.12.2004 addressed to the 2nd respondent wherein it is stated that he has no money and requested the respondent to put her money in the company and stated that he in the capacity as Managing Director will give lull support. To establish the fact that the petitioner in the capacity as managing director addressed a letter dated 04.07.2005 to the flat allottees of AIBOC wherein he stated that we wish to state that despite our best efforts, we could not get statutory approvals within the time framed simulated by all of you, and hence after discussions with AIBOC leadership and representatives of AIBOC enclave flat allottees and in order to avoid further wait by the persons who all had given advance payments. It was unanimously decided to refund the advance money received in full with interest @ 6% per annum from the date of receipt of advance upto 31.05.2005 . The same is evident that the petitioner is in the helm of affairs of the company. Therefore there is no misuse of power for personal gains or ulterior motives - It is the duty of the director to make full and honest disclosure to the shareholders regarding all important matters relating to the affairs of the company, Admittedly prior to first allotment, the company has only two shareholders and two directors i.e. the petitioner and the 2nd respondent. The petitioner is aware of all the acts and he is party to the acts and given his consent according to which the company has taken its decisions in its best interest. In view of the aforesaid reasons the allotment of shares made by the company are legal and valid. Accordingly, the issue is answered. Whether the Board resolution passed on 07.07.2005 for the removal of petitioner as MP is legal and valid? - HELD THAT - The petitioner himself produced annual returns for the year ended 31.12.2005 wherefrom it is evident from the list of directors annexed along with the annual returns shows that the company was having four directors i.e. the petitioner, the 2nd respondent who were appointed on 14.06.2002 and Mr. S. Natarajan and Mr. S. Ramasami who were actually appointed on 27.10.2004 in a Board meeting held on 27.10.2004. Therefore on the date of Board meeting i.e. 07.07.2005 the company was having four directors and three directors were present in the Board meeting held on 07.07.2005 accordingly the Board meeting dated 07.07.2005 is valid and legal - this Bench cannot interfere with the wisdom and exercise of its discretionary powers in a democratic manner. The petitioner has not made out any case either oppression or on mismanagement and the petition is frivolous and liable to be dismissed - Petition dismissed.
Issues Involved:
1. Legality of the Board resolution passed on 27.10.2004 appointing two new directors. 2. Legality of the allotment of shares made on 05.12.2004, 05.01.2005, and 20.02.2005. 3. Legality of the Board resolution passed on 07.07.2005 for the removal of the petitioner as Managing Director. 4. Relief sought by the petitioner. Issue-wise Detailed Analysis: Issue 1: Legality of the Board resolution passed on 27.10.2004 appointing two new directors The R1 Company was incorporated on 14.06.2002 with the petitioner and the 2nd respondent as the only subscribers and first directors. The petitioner's grievance was that the 2nd respondent appointed two directors in a purported Board meeting on 27.10.2004 without his consent. However, the respondents contended that the petitioner was present and consented to the appointment. The minutes of the Board meeting dated 27.10.2004 and a letter from the petitioner authorizing the new directors to receive postal covers confirmed his presence and consent. The court found that the petitioner was indeed present and acquiesced to the decisions taken, making the meeting and the appointment of directors legal and valid. Issue 2: Legality of the allotment of shares made on 05.12.2004, 05.01.2005, and 20.02.2005 The petitioner alleged that the 2nd respondent filed false returns of allotment of shares without offering them to existing shareholders, violating clause 8 of the Articles of Association. The respondents countered that the petitioner had expressed his inability to bring in more funds and consented to the 2nd respondent's actions. The court noted that the petitioner, as Managing Director, was aware of the company's financial needs and had given his consent for the 2nd respondent to act in the company's best interest. The court found that the company had complied with the Articles of Association and that the petitioner was aware and acquiesced to the allotments. Thus, the allotments were deemed legal and valid. Issue 3: Legality of the Board resolution passed on 07.07.2005 for the removal of the petitioner as Managing Director The petitioner claimed he was illegally removed as Managing Director in a Board meeting held on 07.07.2005. The respondents argued that the petitioner was removed due to his contacts with anti-social elements and his expressed desire to quit. The court found that the company had four directors at the time, and three were present at the meeting, making it valid. The Articles of Association allowed the Board to remove the Managing Director. The court upheld the Board's decision, finding no illegality in the removal process. Issue 4: Relief sought by the petitioner The petitioner failed to establish any act of oppression or mismanagement. The court found the petition to be frivolous and dismissed it. The court also noted that the issues related to the Memorandum of Understanding and other agreements were civil disputes outside its jurisdiction. The petition was dismissed with no orders as to costs, and interim orders, if any, were vacated. Applications, if any, pending were disposed of.
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