2005 (12) TMI 587 - Board - Companies Law

Issues Involved:
1. Maintainability of the company petition under Sections 397 and 398.
2. Allegations of oppression and mismanagement.
3. Transfer and allotment of shares.
4. Jurisdiction and limitation period under Section 111A.
5. Reduction of shareholding below 10% due to further allotment of shares.
6. Compliance with statutory requirements and procedural fairness.

Detailed Analysis:

1. Maintainability of the Company Petition:
The respondents argued that the company petition is not maintainable as the petitioner's shareholding is only 5.34% of the issued capital, below the 10% threshold required under Section 399 of the Companies Act. The petitioner contended that his shareholding was reduced from 49.30% to 18.29% due to a transfer of 33,126 shares to the third respondent under duress and coercion, which he sought to be declared void. The petitioner also challenged the further allotment of 2,58,216 shares, which reduced his shareholding to 5.34%. The Board held that the petitioner's title to 19,526 shares, representing 18.29% of the issued capital, is not in dispute. Thus, the petition is maintainable under Sections 397 and 398.

2. Allegations of Oppression and Mismanagement:
The petitioner alleged various acts of oppression and mismanagement, including statutory violations and misappropriation of funds. The respondents argued that the allegations were vague and unsupported by evidence. The Board noted that the petitioner must provide full particulars of the acts of mismanagement and oppression, as vague allegations do not warrant an investigation. The Board decided that these issues would be examined on merits during the hearing of the company petition.

3. Transfer and Allotment of Shares:
The petitioner claimed that the transfer of 33,126 shares to the third respondent was obtained under duress and coercion, and thus void. The respondents countered that the transfer was valid and reflected in the annual return filed with the Registrar of Companies. The Board observed that the petitioner's grievance about the transfer of shares involved a mixed question of law and fact, which could not be rejected at the threshold. The Board also noted that the further allotment of 2,58,216 shares, which the petitioner challenged in his rejoinder, must be adjudicated in the present proceedings.

4. Jurisdiction and Limitation Period under Section 111A:
The respondents argued that the petitioner's claim regarding the transfer of shares was time-barred under Section 111A, which prescribes a two-month period for rectification of the register of members. The Board held that the limitation period does not strictly apply in cases of fraudulent transfer of shares obtained by coercion or duress. The Board cited decisions where the period of limitation was not applied in cases of fraudulent transfers. Thus, the petitioner's claim was not barred by limitation.

5. Reduction of Shareholding Below 10% Due to Further Allotment of Shares:
The petitioner argued that the further allotment of 2,58,216 shares was made without his knowledge and in violation of Section 81(1A), which requires offering further shares to existing shareholders in proportion to their holdings. The Board noted that the petitioner's holding of 19,526 shares, representing 18.29% of the issued capital, was reduced to 5.34% due to the further allotment. The Board held that the further allotment of shares, being seriously disputed, must be ignored while determining the maintainability of the company petition. Thus, the petition is maintainable based on the petitioner's holding before the further allotment of shares.

6. Compliance with Statutory Requirements and Procedural Fairness:
The petitioner alleged non-compliance with statutory requirements and procedural unfairness in the conduct of the company's affairs. The respondents argued that the petitioner's allegations lacked details and were unsupported by evidence. The Board held that the issues of whether the company's affairs were conducted oppressively and whether a winding-up order would be justified would be examined on merits. The Board concluded that the company petition could not be rejected at the preliminary stage as not maintainable.

Conclusion:
The Board concluded that the company petition is maintainable under Sections 397 and 398, as the petitioner's shareholding of 19,526 shares, representing 18.29% of the issued capital, entitles him to maintain the petition. The Board directed that the company petition be heard on merits, and the application challenging the maintainability of the petition was disposed of accordingly. The hearing of the company petition was scheduled for 20.01.2006.

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