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1991 (5) TMI 226 - HC - Companies Law
Shares warrants and entries in register of members Share capital - Further issue of Meetings and Proceedings Contents and manner of service of notice and persons on whom it is to be served Notice for meeting
Issues Involved:
1. Rectification of the register of members.
2. Validity of the transfer of 3,417 shares.
3. Valuation of shares by auditors.
4. Fresh issue of 17,666 shares.
5. Readiness and willingness of the petitioners to purchase shares.
6. Validity of board and general meetings.
7. Trustees' power to act by majority.
8. Allegations of fraud and collusion.
9. Principles of natural justice.
Detailed Analysis:
1. Rectification of the Register of Members:
The petitioners sought the rectification of the register of members of the first respondent company by removing the names of certain respondents in respect of 3,417 shares belonging to the estate of Dr. N.B. Parulekar and 93 shares belonging to the third respondent. The court examined the validity of the transfer of these shares and the issuance of new shares.
2. Validity of the Transfer of 3,417 Shares:
The petitioners argued that the transfer forms were invalid as they were not signed by all executors. However, the court found that under the terms of the will and trust deeds, the trustees were entitled to act by majority. The resolution passed by the trustees authorized any one of them to execute the transfer forms. Thus, the transfer was valid despite the procedural irregularity of not indicating the authority on the transfer forms.
3. Valuation of Shares by Auditors:
The petitioners contended that the valuation by the auditors was unfair and collusive. The court held that under Article 61 of the company's articles of association, the auditors' valuation was final unless fraud or collusion was proven. The petitioners failed to provide evidence of fraud or collusion. The court noted that the shares were sold at a higher price than the auditors' valuation, indicating a fair valuation.
4. Fresh Issue of 17,666 Shares:
The petitioners challenged the fresh issue of shares at par value, arguing it was done without proper notice and to strengthen the control of respondent No. 5. The court acknowledged the irregularity in not listing this item on the agenda but found that the subsequent extraordinary general meeting ratified the issue. The court held that the issue was not illegal and could not be invalidated under Section 155 of the Companies Act.
5. Readiness and Willingness of the Petitioners to Purchase Shares:
The petitioners claimed they were ready and willing to purchase the shares but were deprived due to the high valuation. The court found that the petitioners did not agree to the valuation at the time and later accepted it only after the shares were sold. The court concluded that the petitioners' belated acceptance was not genuine.
6. Validity of Board and General Meetings:
The petitioners argued that the board meeting approving the transfer of shares was invalid due to insufficient notice and the item not being on the agenda. The court held that Section 286 of the Companies Act did not require every item to be specified on the agenda. The court also found no illegality in the board's actions, despite the irregularity.
7. Trustees' Power to Act by Majority:
The court addressed the petitioners' argument that the majority of trustees could not act without consulting the minority. The court found that the majority decision was valid as the first petitioner was aware of the meeting and its purpose. The majority decision was binding as the first petitioner did not challenge it and acted upon it.
8. Allegations of Fraud and Collusion:
The petitioners alleged collusion between the auditors, executors, and purchasers to deprive them of their rights. The court found no evidence or particulars of fraud or collusion. The court highlighted the conflict of interest for the petitioners, who were both trustees and interested purchasers.
9. Principles of Natural Justice:
The petitioners argued that the auditors violated natural justice by not providing a draft valuation for their comments. The court held that auditors, acting as experts, were not required to follow such a procedure. The auditors had given the petitioners an opportunity to make submissions, which they did not utilize.
Conclusion:
The appeals against the conditional order allowing the main company petition were dismissed. The court found no basis to invalidate the transfer of shares or the fresh issue of shares. The petitioners' failure to deposit the required sum within the stipulated period and the absence of evidence of fraud or collusion led to the dismissal of their claims. The court emphasized that Section 155 of the Companies Act was not intended for correcting procedural errors and that the petitioners had other legal remedies available.