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2017 (12) TMI 1662 - Tri - Companies LawOppression and mismanagement - Legality of allotment of shares - Board Meetings held without quorum - Whether the allotment of shares i.e. 5,05,000 in favour of Respondent Nos.2 and 3 in the Board Meetings purportedly held on 25.04.2008 and 11.08.2010 is legal and valid? - Whether the continuance of Respondent 3, viz., Mrs. Bindu Paul as a Director of 1st Respondent company is legal and valid? - Whether the appointment of 4th Respondent as a Director of the 1st Respondent company purportedly made on 27.1.2011 is legal and valid? - HELD THAT:- It is settled legal position that if further issue of shares results in conversion of majority into a minority, or creation of new majority, then, such issue of shares is not only in breach of fiduciary responsibilities but also a grave act of oppression against the existing majority. Therefore, the allotment of shares impugned in the Company Petition which have been made without proper service of notice with a view to gain advantage against the Petitioners being the majority shareholders of the closely held company is in breach of fiduciary obligation of the Directors which is neither in compliance with the legal requirements nor ensures the fair play and probity in corporate management. Thus, it amounts to an act of gross oppression. In view of this, the allotments made on 25.04.2008 and 11.08.2010 of 505000 shares to Respondent Nos. 2 and 3 is illegal. Board Meetings held without quorum as required by the Articles of Association of the 1st Respondent Company are bad in law and the appointments of additional Directors at such Board Meeting was also bad in law, as that failed to satisfy the test required by law as has been laid down in Murari Mohan's case [2015 (7) TMI 298 - COMPANY LAW BOARD] The allotments of shares i.e. 5,05,000 in favour of the Respondent Nos. 2 and 3 made on 25.04.2008 and 11.08.2010 are declared illegal, and the same stand set aside. The Board Meetings purportedly held on 25.04.2008 and 11.08.2010 are not tenable in the eye of law, the same are declared as illegal, and all decisions taken there at are set aside. The EoGMs dated 22.01.2011 and rights offer dated 01.02.2011 are declared illegal, null and void and hence, are set aside. The continuance of Respondent No. 3 and appointment of Respondent No.4 are declared as illegal, null and void, and hence, set aside. The 1st Petitioner is appointed as Managing Director of 1st Respondent Company and Mr. K. J. Paul is removed from the position of Managing Director, but he shall perform the duties as Director of the 1st Respondent Company. Consequently, the said Board of Directors is directed to rectify the Register of Members by restoring the shareholding pattern as on 30.09.2005 as shown under para 6(a) of the Petition. As proposed to appoint an independent Auditor within three weeks of passing this Order, with the consensus of the Board of Directors comprising of 1st Petitioner and the 2nd Respondent, failing which, this Bench on mention by any of the Directors, shall appoint the independent Auditor out of the names, if suggested, by the parties, who (Independent Auditor) shall determine the true and fair value of the shares of 1st Respondent Company by taking into consideration three Financial Years w.e.f. 2011 onwards. Based on the said value, and keeping in view the shareholding pattern as on 30.09.2005, the first opportunity for purchase of shares of Respondents is given to Petitioner, failing which the Respondents shall purchase the shares of the Petitioner. This process shall commence after the submission of the report of the independent Auditor, who shall submit the same within four weeks from the date of his appointment, and shall get completed within the twelve weeks thereafter. Till this process is completed, there shall not be any change in the composition of the Board constituted by this Bench, and shareholding pattern shall remain the same as on 30.09.2005. The fee of the independent Auditor shall be paid by the 1st Respondent Company which shall be fixed as per mutually agree of terms
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