2001 (11) TMI 1060 - Board - Companies Law

Summary

Issues Involved:
1. Validity of the Extraordinary General Meeting (EOGM) held on 24.3.1999.
2. Legality of the allotment of 2,000 additional shares to the third respondent.
3. Compliance with Article 10 of the Articles of Association regarding the transfer of shares by three groups of shareholders to the third respondent.

Detailed Analysis:

1. Validity of the Extraordinary General Meeting (EOGM) held on 24.3.1999:

The petitioners alleged that no notice of the EOGM was given to them and that the meeting did not actually take place, with the minutes being fabricated. The respondents claimed the EOGM was held after due notice to all shareholders, but failed to produce any evidence, such as postal certificates or dispatch registers, to support their claim. The court noted that the respondents did not provide proof of service of notice or minutes of the Board meeting that allegedly decided to call the EOGM. The court found the petitioners' denial of receipt of notice sufficient to rebut the presumption of posting, and the respondents failed to discharge their burden of proof. Therefore, the court held that the EOGM was not validly held, and the decisions taken thereat were invalid.

2. Legality of the allotment of 2,000 additional shares to the third respondent:

Despite the invalidity of the EOGM, the court considered whether the allotment of shares was in the interest of the company. The court noted that the company was in financial difficulties and that the majority of shareholders had approved the allotment to the third respondent, who had been managing the company as a licensee. The court concluded that the decision to allot shares was taken in the interest of the company and, therefore, should not be nullified on the ground of oppression. The court also found that the petitioners' letters expressing their desire to purchase shares were not conclusively established.

3. Compliance with Article 10 of the Articles of Association regarding the transfer of shares by three groups of shareholders to the third respondent:

The petitioners argued that the transfer of shares violated Article 10, which requires shares to be offered to existing members before being transferred to non-members. The court noted that Article 10(a) allows members to identify a willing member on their own and negotiate the price. Since the third respondent became a shareholder on 24.3.1999, the transfer of shares to him was in accordance with Article 10(a). The court held that the petitioners would have been entitled to only 23% of the shares transferred, not all the shares. The court concluded that the transfer of shares, even if in violation of Article 10, was done in the interest of the company and could not be considered an act of oppression.

Conclusion:

The court directed that the petitioners' group should exit the company on receipt of proper consideration for their shares. The valuation of the shares was to be done by the statutory auditors based on the balance sheet as of 31.3.2000. The respondents or the company would purchase the petitioners' shares based on this valuation. The court disposed of the petition with no order as to costs.