2007 (5) TMI 684 - Board - Companies Law

Summary

Issues Involved:
1. Preliminary objections regarding the maintainability of the petition.
2. Allegations of oppression and mismanagement by the respondents.
3. Validity of the share allotment and increase in share capital.
4. Legality of the removal of the petitioners as directors.
5. Sale of time shares without informing the petitioners.

Detailed Analysis:

Preliminary Objections
The respondents raised two preliminary objections: (1) the petitioner holding only 8% shares was not entitled to file the petition under Sections 397 and 398 of the Companies Act, 1956, and (2) the petition was not instituted by a person duly authorized to represent the petitioner. The petitioner countered that she initially held more than 10% shares and challenged the further allotment of shares that reduced her shareholding. The Board found these objections untenable, stating that if the shareholding is reduced below 10% due to further issue of shares, and if such issue is challenged, the petition is maintainable. The Board also dismissed the objection regarding the Power of Attorney, emphasizing substantial justice over technicalities.

Allegations of Oppression and Mismanagement
The petitioner alleged various acts of oppression and mismanagement, including the purported increase in capital reducing her shareholding from 30% to 8%, unauthorized removal as a director, and sale of time shares without her knowledge. The respondents failed to provide sensible responses to these allegations, relying on mere denials and unsubstantiated claims.

Validity of Share Allotment and Increase in Share Capital
The petitioner argued that the increase in share capital from Rs. 10 lakhs to Rs. 40 lakhs and the subsequent allotment of shares were illegal and intended to reduce her shareholding. The Board found that the respondents did not follow due procedure and failed to justify the necessity for the increase in capital. The respondents' claim that the increase was to pay off a loan was contradicted by the fact that the loan was paid off before the share allotment monies were collected. The Board declared the increase and allotment of shares null and void, recognizing it as an act of continuous oppression.

Legality of Removal as Directors
The petitioner and her husband were allegedly removed as directors under Section 283(1)(g) of the Companies Act. The Board found contradictions in the respondents' statements and noted that the removal was not conducted according to the due procedure. The Form 32 filed after the petitioner's husband's death indicated resignation, not removal. The Board deemed the removal illegal and directed that the petitioner's son be placed as a director in place of her deceased husband.

Sale of Time Shares
The petitioner alleged that the respondent No. 2 sold time shares in the hotel property without informing her, for a consideration of 93,000 pounds sterling. The absence of respondent No. 8, who initially intended to represent before the Board, strengthened the petitioner's contention. The Board granted the petitioners liberty to review the transaction and take appropriate steps in the company's interest.

Conclusion
The Board granted the petitioner's prayers, directing the respondent company to implement the orders forthwith. The petition was disposed of with all interim orders vacated and no order as to costs. The Board recognized the petitioner's entitlement to 50% shareholding and declared the increase and allotment of shares in March 2003 null and void due to continuous oppression and illegal acts by the respondents.