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TMI Blog2009 (5) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners and the second respondent are brothers. The company was promoted by their father. The signatories to the memorandum was the father, the second respondent, the first petitioner being the wife of the third petitioner and the second petitioner being the wife of the fourth petitioner. Before the allotment of the impugned shares, the petitioners' group collectively held 2,100 equity shares out of 3,600 equity shares that had been subscribed and paid-up. The second respondent group held 1,000 shares. The balance 500 shares continued to remain in the name of the late father. The board of directors consisted of the first and second petitioners and the second respondent, each of them being a whole-time director drawing remuneration. The allegations in the petition are that with a view to gain majority in the board, the second respondent had allegedly appointed the third respondent being his wife and the fourth respondent being his son as directors on March 31, 2007 and that 1,340 shares were allotted to the third and fourth respondents with a view to gain majority in the shareholding also. 3. Counsel for the petitioners submitted : By holding 2,100 shares out of 3,600 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany never had a managing director for over 25 years, there was no need for him to have appointed himself as the managing director and it was done only with a view to concentrate all the managerial powers with him. In the reply to the petition, the second respondent has disclosed that an extraordinary general meeting was allegedly held on December 18, 2007, in which decision to remove the first and second petitioners as directors was taken. No notice for this meeting was received by the petitioner-directors nor any of them attended the said meeting. Therefore, considering the fact that the company is a family company in which the petitioners' group has been actively involved for over 25 years with majority shareholding and also a majority on the board, the allotment of additional shares should be cancelled as also the appointment of third and fourth respondents as directors and as well as appointment of the second respondent as the managing director. The first and second petitioners should be restored as directors and arrears of remuneration should be directed to be paid to them. 4. Shri Sharma, advocate, appearing for the respondents submitted : The petitioners have suppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; group was in charge of sales, it was selling goods for cash and did not bring the proceeds into the books of account due to which the company incurred huge losses in 2007. On October 29, 2007, the second respondent wrote to the first petitioner bringing out various prejudicial acts done by her and sought for her explanation. She did not reply to the said show-cause notice for over 40 days. This show-cause notice has not been disclosed in the petition. In the meanwhile, a requisition dated October 29, 2007, was received from a shareholder seeking for convening an extraordinary general meeting to remove the first and second petitioners as directors. Accordingly, the board issued a notice on November 22, 2007 calling for an extraordinary general meeting on December 18, 2007. The said notice was sent to all the petitioners but none of them attended the said meeting. The extraordinary general meeting was duly held on December 18, 2007 and members present holding 52.7 per cent. shares passed a resolution removing the first and second petitioners as directors. Since they were removed due to their prejudicial acts, the same cannot be considered to be oppressive. Thus, no act of oppressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the allotment of shares is on the basis that the first petitioner had signed the balance-sheet and also the annual report reflecting the increase in the paid-up capital. In so far as signing of the balance-sheet is concerned, it was done in a routine manner without looking into the actual figures contained therein. If the directors' report had disclosed the increase in the paid-up capital and/or of the appointment of the third and fourth respondents as directors, the petitioners would have known the ill design of the second respondent. Further, from the minutes of the board meetings disclosed by the second respondent, it may be seen that even though the third and fourth respondents were allegedly appointed as directors on March 31, 2007, yet, their presence is not shown in the minutes of the board meetings dated May 7, 2007, August 10, 2007, August 30, 2007 and September 4, 2007. The very fact that Form No. 32 in respect of their appointments was filed only on November 22, 2007, would indicate that the alleged appointment of these two directors on March 31, 2007, did not take place at all. Even assuming that the third and fourth respondents had been appointed as directors on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report (which the petitioners claim to be forged) cannot disentitle the petitioners to challenge the allotment and the appointment. If the petitioners had really participated in the board meeting on March 31, 2007 and had consented to give up their majority in the shareholding as well as on the board, it would indicate smooth relationship between the parties at that time. If so, there was no reason for the first and second petitioners to pass a resolution changing the bank operation on July 1, 2007, i.e., within a period of three months. Further, the stand of the second respondent is that shares were allotted to the third and fourth respondents against the share application money. I find from the balance-sheet as on March 31, 2006, that the share application money available was only ₹ 31,000 but shares were allotted worth ₹ 1,34,000. Therefore, if the shares were to be allotted against the application money, it could have been only to the extent of ₹ 31,000 and in which case, the petitioners' majority would not have been affected. Therefore, it is evidently clear that the allotment of shares worth ₹ 1,34,000 was only with a view to gain larger sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the third and fourth respondents had been appointed as directors as contended by the second respondent on March 31, 2007, as pointed out by the petitioner their presence had not been shown in the board meeting held on May 7, 2007, August 10, 2007, August 30, 2007 and September 4, 2007. Even though learned Counsel for the respondents submitted that since these directors were under the impression that they could not attend board meetings till Form No. 2 was filed, the filing of Form No. 2 belatedly itself would indicate that the alleged appointment is nothing but, a fabrication. Further, in terms of Article 25 of the articles of association of the company, the directors are to be appointed on the principle of proportional representation and perhaps this is the reason why all along the first and second petitioners and the second respondent holding one-third shares each had been appointed as directors. When the articles provide for proportionate representation, the question of removing the first and second petitioners does not arise. Further, in so far as appointment of the third and fourth respondents as directors by the board is concerned, in terms of Article 25, they could have be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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