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2006 (9) TMI 574 - COMPANY LAW BOARD NEW DELHIOppression and mismanagement - jurisdiction under Sections 397/398 - director removed from the board - family company - Whether the letter of the petitioner could have been treated as a letter of resignation - seeking declaration that the allotment of shares is bad in law - HELD THAT:- Admittedly, the company took over the business of partnership firms in which the petitioner was a partner and thereafter, he continued to be a whole time director of the company. Thus, the petitioner has a vested right to continue as a director. There is no mention about directorship nor the letter has been addressed either to the company or to the board of directors. There is not even a mention of "resignation". Therefore, by treating this letter as the letter of resignation and ousting the petitioner who was a partner in the earlier firm the business of which the company had taken over, and continued as a whole time director of the company, the respondents have acted highly oppressive to the petitioner. It is seen that all the 598676 shares proposed to be allotted on the two occasions had been allotted only to the members belonging to the respondents' group and thus they have consolidated their position in the company. There is no evidence that for the first allotment, shares were offered to the petitioner and the respondents have admitted that in respect of the second allotment, no offer was made to the petitioners. Thus, the petitioners are justified in claiming that by the said allotments, not only the respondents have enriched themselves but also reduced the percentage holding of the petitioners. Considering the fact that the petitioners' holding in the company is only around 10% and that the company is engaged in a profitable business, winding up of the company would be against the interest of the shareholders as well as the company. Therefore, since in terms of section 397 the acts complained of should be put an end to, I could direct the company to take back the 1st petitioner as a director and also direct the allottees of the shares to transfer such number of shares to the petitioners which would bring their share holding to the original percentage. However, I do not propose to do so. It is the understanding of the respondents that the desire of the petitioner in saying "good bye" amounted to resignation. He had actually desired to say "good bye" to the business association and partnership. It would mean that he did not desire to have any association with the respondents. This being the case, his business association can be terminated by purchasing his shares in the company so that the respondents would have truly acted not only in spirit but also in terms of that letter. Even otherwise, since the relationship between the petitioners and the respondents has soured, in the interests of all concerned, the petitioners, being in minority, their shares could be purchased either by the company or the respondents as the case may be at the option of the respondents. This would not only put an end to the disputes but also would be in the long term interests of all concerned. By another order of even date, in respect of another company in which the same shareholders are parties, I have given the option to the respondents, who are in minority, to go out of the company. Therefore, in terms of Section 402, I consider it appropriate that the final goodbye should be by way of exist of the petitioners as members of the company by directing the respondents/the company to purchase the shares held by the petitioners on a fair value to be determined by an independent valuer. such fair value will also take care of the allegation of the petitioners that the respondents have issued shares to themselves at par value when the fair value was much higher. Accordingly, I order so. The parties will appear before me to suggest a mutually acceptable valuer to determine the fair value. The valuation of the shares shall be on the basis of the balance sheet, being the proximate to the date of the petition.
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