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2018 (6) TMI 678 - Tri - Companies LawShare Transfer and allotment legality to director - application of section 59 of Companies Act - Held that - The petitioner as well as the 2nd respondent are admittedly present during Board Meeting in question to transact the business of the Company. Accordingly the business of the Company was conducted duly following the above articles of Association of the Company. It is also relevant to point out here that the petitioner is not disputing the appointment Mr. V Shashi Kumar (respondent No.3) but selectively opposing allotment of shares to him for the reasons best known to him. Since we hold that the impugned transfer and allotment are legal, there is no question of application of section 59 of Companies Act to the facts and circumstances of the case. So far as the issue of Board of Directors is concerned, Articles 29- 47 of Articles of Association of the Company dealt with the constitution of the Board of Directors, appointment, retirement, etc., as per Article 30 Mr. R. Shiv Kumar (Petitioner) and Dr. Subba Rao P (Respondent No.2) of the First Directors of the Company. As per the Article-29 the member of Director should not be less than two and not more than 12 including Managing Director or nominated Director and other Directors if any. As per Article 34 Board of Directors shall have power to appoint Additional Directors subject to the maximum mentioned as sated above. As per Article-38 the quorum for a meeting of the Board of Directors shall be 1 /3rd of its total strength (any fraction contained in that 1/3rd being rounded off as one) or two Directors whichever is higher. Thus the impugned transfer and allotment are legal, there is no question of application of section 59 of Companies Act to the facts and circumstances of the case.
Issues Involved:
1. Whether the respondents followed Articles 17 to 22 of the Articles of Association of the Company in conducting and passing the impugned Board resolutions dated 25.08.2014 and 03.09.2014. 2. Whether the petitioner can continue the present petition under sections 397/398 of the Companies Act, 1956/Sections 241 and 242 of the Companies Act, 2013, after ceasing to be a Director on resignation on 14.10.2014. Issue-Wise Detailed Analysis: 1. Compliance with Articles 17 to 22 of the Articles of Association: The Tribunal examined whether the respondents adhered to the Articles of Association, particularly Articles 17 to 22, which govern the transfer of shares and the conduct of board meetings. The petitioner alleged that the Board resolutions dated 25.08.2014 and 03.09.2014 were tampered with and uploaded illegally. However, the Tribunal noted that the petitioner attended both meetings and did not provide evidence of tampering. The minutes of the meetings, which the petitioner claimed were fake, did not bear the Chairman's signature, but the petitioner had received notices for the meetings and participated in them. The Tribunal concluded that the contention of tampering was baseless and rejected it. 2. Continuation of Petition Post-Resignation: The Tribunal addressed whether the petitioner could continue the petition for oppression and mismanagement after resigning as a Director. The petitioner resigned on 14.10.2014, reducing his status to a shareholder with 5% shares. The Tribunal emphasized that acts of oppression and mismanagement must be ongoing at the time of filing the petition and continue until the final hearing. The Tribunal cited the Kerala High Court's ruling in Palghat Exports (P.) Ltd. v. T.V. Chandran, stating that isolated acts cannot constitute oppression; there must be continuous unfair acts. The Tribunal concluded that since the petitioner ceased to be a Director, the alleged acts of oppression and mismanagement ceased to exist, rendering the petition not maintainable. 3. Transfer and Allotment of Shares: The Tribunal examined the legality of the transfer and allotment of shares. The petitioner argued that the transfer of 500 shares to the 3rd respondent and the allotment of 90,000 shares to the 2nd respondent were illegal. The Tribunal noted that Article 17 of the Articles of Association allows share transfers to non-members if existing members do not purchase them. The petitioner, aware of the proposed transfer, did not object during the meetings. The Tribunal found no illegality in the transfer and allotment of shares, as the petitioner did not express willingness to purchase the shares and the transfers did not affect his shareholding directly. 4. Share Application Money and Unsecured Loans: The Tribunal reviewed the contributions made by the petitioner and the 2nd respondent as share application money. The 2nd respondent contributed ?1,64,55,000, while the petitioner contributed ?2,86,00,000. By the end of 2013-14, the share application money was converted into unsecured loans, with the 2nd respondent's loan amounting to ?18,753,530 and the petitioner's to ?26,011. The Tribunal noted that the balance sheet signed by both parties reflected these amounts. The Tribunal found that the company followed the provisions of section 42 of the Companies Act, 2013, regarding the allotment of securities. 5. Validity of Board Meetings and Resolutions: The Tribunal examined the validity of the Board meetings and resolutions. The Articles of Association required a quorum of two Directors, which was met as both the petitioner and the 2nd respondent attended the meetings. The Tribunal found that the business of the company was conducted in accordance with the Articles of Association. The petitioner did not dispute the appointment of the 3rd respondent as an Additional Director but selectively opposed the allotment of shares. The Tribunal held that the impugned transfer and allotment were legal, and there was no application of section 59 of the Companies Act. Conclusion: The Tribunal concluded that the petitioner failed to make out a case for interference and dismissed the company petition bearing CP No. 58 of 2015 (TP No.80/HDB/2016) with no order as to costs. The Tribunal found that the respondents followed the Articles of Association and the principles of natural justice in conducting the Board meetings and passing the resolutions. The petitioner's allegations of tampering and illegal transfer of shares were rejected as baseless. The Tribunal also held that the petitioner could not continue the petition after resigning as a Director, as the alleged acts of oppression and mismanagement ceased to exist.
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