2007 (9) TMI 719 - Board - Companies Law

Issues Involved:
1. Allegation of oppression and mismanagement.
2. Validity of share transfer.
3. Removal of directors.
4. Amendment of Memorandum of Association.
5. Finalization of accounts.
6. Enforcement and abandonment of MOU.
7. Maintainability of the petition under Sections 397 and 398 of the Companies Act, 1956.

Detailed Analysis:

1. Allegation of oppression and mismanagement:
The petitioners alleged acts of oppression and mismanagement by the respondents, including the reduction of their shareholding from 48.69% to nil without compliance with the MOU dated 24.1.2002. It was contended that the share transfer was antedated and illegal, and that P-1 to P-3 were illegally removed from the Board. The Articles were allegedly amended to make R-1 a guarantor for loans to the directors, and accounts were finalized clandestinely.

2. Validity of share transfer:
The petitioners argued that the transfer of 18,500 shares shown to have taken place on 1st February 2004 was illegal and antedated. They pointed out discrepancies such as the transfer deeds and share certificates reaching R-1 between 6-01-2005 and 28-01-2005, the absence of a Board Meeting on 1st February 2004, and non-compliance with Section 108 of the Companies Act, 1956. They also argued that the transfer deeds were invalid due to lack of proper execution and witnessing.

3. Removal of directors:
The petitioners contended that their removal from directorship was illegal and oppressive. They argued that no Board Meetings took place on the dates of their alleged cessation as directors, and Form 32 filed with the ROC contained discrepancies. They claimed that their removal was without reason and lacked probity and fair play.

4. Amendment of Memorandum of Association:
The petitioners argued that the amendment of the object clause of the Memorandum to authorize the company to be a guarantor for loans to directors was illegal and ultra vires. They pointed out that no EGM was held on 20-10-2003 as claimed by the respondents, and the Secretarial Compliance Report stated that no EGM was held during the financial year 2003-04.

5. Finalization of accounts:
The petitioners contended that the balance sheets for 2000-2001 and onwards were finalized without their knowledge, consent, or approval. They argued that the accounts were finalized without proper Board Meetings and notices, and the signatures of the Managing Director were not obtained as required under Section 215 of the Companies Act.

6. Enforcement and abandonment of MOU:
The petitioners argued that the MOU dated 24.1.2002 was abandoned by both parties through their conduct. They contended that the respondents adopted a clandestine method of transferring shares without consideration, and the Escrow Agent (R-4) acted in a biased manner. The petitioners pointed out that the Institute of Chartered Accountants of India held R-4 guilty of non-compliance with the MOU.

7. Maintainability of the petition under Sections 397 and 398:
The respondents argued that the petition was not maintainable as the petitioners did not meet the requirements of Section 399(1) of the Companies Act, 1956. They contended that the petitioners were not members of the company at the time of filing the petition, as they had transferred their shares and resigned from the Board. The consent of petitioner Nos. 7 to 11, who held 17.1% equity shares, was withdrawn during the pendency of the proceedings, leaving the petitioners without the requisite shareholding to maintain the petition.

Conclusion:
The Company Law Board dismissed the petition as not maintainable, holding that the petitioners did not meet the requirements of Section 399(1) of the Companies Act, 1956. The Board found that the petitioners were not members of the company at the time of filing the petition, and the withdrawal of consent by petitioner Nos. 7 to 11 further invalidated the petition. The Board did not address the merits of the petition due to its lack of maintainability. No order as to costs was made.

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