2002 (5) TMI 720 - HC - Companies Law

Court invalidates share allotment, removes directors, reconstitutes Board, upholds relief orders. Limited jurisdiction emphasized.

The High Court upheld the Company Law Board's decision, finding the allotment of shares to certain appellants invalid due to procedural irregularities. ... Oppression and mismanagement Issues Involved:1. Validity of the allotment of shares.2. Validity of the Board meetings and resolutions.3. Allegations of oppression and mismanagement.4. Jurisdiction and powers of the Company Law Board (CLB) and the High Court.5. Appropriate relief and remedies.Summary:1. Validity of the Allotment of Shares:The respondent, Senthamarai Munusamy, claimed that the allotment of shares on 16-4-1997 to the relatives of the second appellant, Sounder, was ex facie illegal and invalid. The CLB found that the allotment of shares to appellants 3 to 5 was invalid due to lack of quorum and absence of notice for the Board meeting held on 14-4-1997. The CLB also noted contradictions in the minutes and the counter statement regarding the receipt of allotment money, leading to the conclusion that the companies did not act bona fide in the allotment of shares.2. Validity of the Board Meetings and Resolutions:The CLB held that the Board meetings on 18-4-1998 and 25-4-1998 lacked quorum, making the decision to convene an extraordinary general meeting on 1-5-1998 invalid. Consequently, the resolutions passed in the extraordinary general meeting, including the induction of appellants 4 and 5 as directors and the removal of the respondents as directors, were also invalid. The High Court upheld these findings, emphasizing the absence of proper notice and quorum for the meetings.3. Allegations of Oppression and Mismanagement:The respondents alleged several acts of oppression, including the illegal allotment of shares and their removal as directors. The CLB found a chain of acts constituting oppression, including the invalid allotment of shares, the improper induction of directors, and the removal of the respondents from directorship. The High Court agreed with the CLB's findings, noting that the second appellant's actions reduced the respondents to minority shareholders and excluded them from management, benefiting only the relatives of the second appellant.4. Jurisdiction and Powers of the CLB and the High Court:The High Court emphasized its limited jurisdiction u/s 10F of the Companies Act, 1956, to decide only on questions of law arising out of the CLB's order. The Court reiterated that it cannot reappraise evidence or interfere with factual findings of the CLB unless there is a question of law. The Court upheld the CLB's findings on the invalidity of the meetings and resolutions, the lack of quorum, and the absence of proper notice.5. Appropriate Relief and Remedies:The CLB ordered the setting aside of the allotment of shares to appellants 3 to 5, the removal of appellants 4 and 5 as directors, and the reconstitution of the Board of Directors with the respondents and the second appellant. The CLB also directed that the second appellant should take one company and the respondents should take another company, to be decided by lot. The High Court upheld these orders, finding them just and equitable to prevent further abuse of power and ensure effective corporate management.Conclusion:The High Court dismissed the appeals, affirming the CLB's findings and orders. The Court found no reason to interfere with the CLB's decision, which was based on substantial evidence and aimed at addressing the acts of oppression and ensuring fair management of the companies.