TMI Blog1999 (4) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... st petitioner was a director in charge of marketing while the third respondent has been the chairman and managing director of the company. In a board meeting held on May 11, 1997, the board allotted 2,600 shares to two respondent directors by which the petitioners group was reduced from majority into minority. This allotment, according to the petitioners, was done with a mala fide intention to reduce the petitioners' group from majority into minority. Later, the petitioners filed an additional affidavit alleging that, after the petition was filed, the petitioners came across many instances of large scale embezzlement of funds of the company by the respondents and they have also annexed with the affidavit, some documents to support this allegation. 3. When the petition was taken up for hearing, efforts were made to settle the disputes amicably and after a few attempts towards the same, we passed a consent order on January 22, 1999, by which the respondents wore to sell their original 5,500 shares held by the respondents at the rate of ₹ 250 per share and the additional issue of 2,600 shares at par to the petitioners. This was subject to the bank agreeing to substitute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n oblique motive, he submitted. Further, he also submitted that no funds were brought in by these two allottees and the shares were issued in adjustment of unsecured loans given by them to the company. Therefore, the respondents even cannot take a stand that the allotment of further shares was made for mobilising funds for the company. Relying on Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 SCC 333, he submitted that if the shares are issued not for the benefit of the company but for some collateral purpose, then such allotment is void, He also submitted that the respondents have questioned the mode and manner of acquisition of shares by the first petitioner which they cannot lawfully do at this point of time since the first petitioner acquired the shares with the full knowledge of the respondents and the board consisting of the respondents approved registration of such shares in the name of the first petitioner. He further submitted that 1,800 shares were transferred to the petitioners' group in May, 1995, and at that time the members of the board knew that by this acquisition, the petitioners' group would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity originally but by acquiring shares by transfer by adopting various illegal ways and registering such transfers without the approval of the board, now he claims majority. There have been a number of instances of the first petitioner in collusion with the sixth petitioner, defrauding the company for his personal benefit. In view of this, the first petitioner was removed from being in charge of accounts and administration in February, 1996, and was later removed from the directorship. In view of this, the petitioner made various complaints to the Vigilance Commissioner and the Registrar of Companies and also the bankers of the company making various motivated allegations. Because of his complaints to the bank, it has initiated proceedings before the Debt Recovery Tribunal apprehending that all is not well with the company. According to learned counsel, the conduct of the petitioner in relation to the affairs of the company has been highly detrimental to the interests of the company. Therefore, he submitted that the petitioner has not come with clean hands and as such does not deserve to be heard. In this connection, he referred to the decision in Ebrahimi v. Westbourne Galleries L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has been following, right from beginning the same mode of selling of goods and the petitioners are only trying to prejudice the Company Law Board with such allegations. He submitted that after the removal of the first petitioner as a director, the company has been doing fairly well and has discharged certain liabilities. He submitted that continuance of the dispute may only result in the bank's disposing of the assets of the company on a direction from the Debt Recovery Tribunal which would result in the company losing its substratum. Therefore, he submitted that whatever may be the findings on the allegation relating to allotment of shares, the Company Law Board should pass an appropriate order to pave the way for parting of ways between the petitioners and the respondents. 9. We have considered the pleadings and arguments of counsel. The only substantive allegation alleged in the petition is the allotment of additional shares to the respondents' group, which according to the petitioners has reduced them from majority to minority. The admitted position is that the board of directors took a decision on the suggestion of the first petitioner on April 8, 1996, to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have to necessarily declare the allotment as invalid. However, we are not doing so for the reasons indicated hereinafter. 10. In regard to the allegations contained in the additional affidavit, we do not propose to express any opinion inasmuch as there are counter allegations against the petitioner also. As indicated by us during the hearing, the differences between the petitioners and the respondents are such that it is not possible for them to continue together. Even assuming that we declare the allotment of shares as invalid, the petitioners would gain majority control and as they had earlier issued a notice for convening an extraordinary general meeting to remove the respondents as directors, they would be at liberty to do it again which would pave the way for further litigation affecting the interests of the company. In a Section 397/398 petition, the interest of the company is paramount and the same can be protected especially when there are proceedings before the Debts Recovery Tribunal only by directing one of the groups to go out of the company by selling their shares to the other group. Even though, an agreement was reached before us, as recorded in our order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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