1992 (8) TMI 288 - Board - Companies Law

Board rules in favor of Mrs. Rashmi Seth, deems reduction of shareholding and illegal allotment oppressive.

The Board found in favor of Mrs. Rashmi Seth in her petitions u/s 397/398, ruling that the reduction of her shareholding and illegal allotment of shares ... - Issues Involved:1. Allegations of oppression and mismanagement u/s 397/398.2. Request for appointment of an inspector to investigate the affairs of the company u/s 235/237.3. Request for appointment of Government directors u/s 408.4. Maintainability of the petitions in view of a pending suit in the Delhi High Court.5. Validity of the allotment of 2,101 shares and compliance with the articles of association.Summary:Issue 1: Allegations of Oppression and Mismanagement u/s 397/398Mrs. Rashmi Seth filed petitions u/s 397/398 against Chemon (India) Pvt. Ltd. and her husband, alleging oppression and mismanagement. She contended that her shareholding was reduced from 800 to 200 shares without her consent and that 2,101 shares were illegally allotted to her husband, violating the articles of association. The petitioner sought the declaration of the shareholders' and directors' meetings as illegal, rectification of the register of members, reconstitution of the board with an independent chairman, and access to company records.Issue 2: Appointment of an Inspector u/s 235/237The petitioner requested the appointment of an inspector to investigate the affairs of the company, alleging tampering and falsification of records. The Board noted the petitioner's claims of fabricated records and the need for an investigation.Issue 3: Appointment of Government Directors u/s 408Similar allegations were made in the petition u/s 408, seeking the appointment of Government directors to oversee the company's affairs. The Board considered these allegations in conjunction with the other petitions.Issue 4: Maintainability of the PetitionsThe respondents argued that the petitions were not maintainable due to a pending suit in the Delhi High Court seeking similar reliefs. They also contended that the petitioner held less than 10% of the share capital, making her ineligible to file the petitions u/s 397/398. However, the Board found prima facie evidence that the petitioner held more than 10% shares, satisfying the requirements of Section 399.Issue 5: Validity of the Allotment of 2,101 SharesThe Board examined the articles of association, particularly Articles 5 and 13(b), and concluded that the allotment of 2,101 shares to respondent No. 2 was in contravention of Article 13(b), which required new shares to be offered first to existing shareholders. The Board found that the allotment was a misuse of fiduciary powers, intended to consolidate respondent No. 2's control and convert the petitioner's majority shareholding into a minority.Conclusion:The Board set aside the allotment of 2,101 shares made on September 24, 1990, and directed the calling of an extraordinary general meeting to elect a new board of directors. It reconstituted the board with four directors, including an independent chairman, Justice (Retired) M.L. Jain. The Board concluded that the petitions were maintainable and that the actions of respondent No. 2 were oppressive and in violation of the articles of association. The order also included the appointment of an independent chairman to oversee the company's affairs and call a meeting for electing a new board. The petitions u/s 235/237 and 408 were deemed unnecessary to be addressed separately in light of the comprehensive relief granted.