2006 (10) TMI 474 - Board - Companies Law

Court nullifies director removal, sets aside appointment, orders share purchase bids.

Ansar Khan and Kalimulla Shariff Versus Finecore Cables Private Limited, Fazlulla Shariff, Kanees Fathima and State Bank of India

The court declared the removal of the petitioners from the office of director null and void, set aside the appointment of the third respondent as a ... - Issues Involved:1. Illegal transfer of shares.2. Removal of petitioners from the office of director.3. Appointment of the third respondent as a director.4. Convening of board meetings without the required minimum quorum.5. Non-sending of notices to board and general meetings.Detailed Analysis:1. Illegal Transfer of Shares:The petitioners alleged that the second respondent failed to dispatch share certificates after the board approved the transfer of 4815 shares to the second petitioner. The respondents claimed that the shares were transferred to respondents 2 & 3 at the board meeting on 30.09.2004. The court found no evidence of compliance with Section 286 of the Companies Act, 1956, which mandates notice to all directors for board meetings. The records failed to establish the second petitioner's attendance at the purported meeting, rendering any decisions made therein invalid. The complexity of the issues, including allegations of forgery and fabrication, necessitated a civil court's intervention for a thorough investigation.2. Removal of Petitioners from the Office of Director:The petitioners contended that they were removed without proper notice and in violation of Section 284 of the Act. The respondents failed to prove service of notice for the extra-ordinary general meeting on the petitioners. The court emphasized the mandatory nature of Section 172, which requires notice to every member. The lack of proper notice invalidated the resolutions passed at the meeting. The court held that the petitioners were not validly removed from their directorship.3. Appointment of the Third Respondent as a Director:The court found that the appointment of the third respondent was irregular and aimed at assuming exclusive control of the company. The appointment was not valid as it was part of the invalid meeting where the petitioners were purportedly removed. The court set aside the appointment of the third respondent.4. Convening of Board Meetings Without the Required Minimum Quorum:The petitioners argued that several board meetings were convened without the required quorum and without notice to them. The court noted the mandatory nature of quorum requirements and the invalidity of resolutions passed without a quorum. The respondents failed to provide evidence of proper notice and quorum, rendering the meetings and their resolutions invalid.5. Non-Sending of Notices to Board and General Meetings:The court found that the respondents did not comply with the statutory requirements for sending notices to the petitioners. The use of courier consignment notes did not amount to conclusive proof of service. The lack of proper notice invalidated the meetings and resolutions, supporting the petitioners' claim of oppression.Conclusion:The court declared the removal of the petitioners from the office of director as null and void and set aside the appointment of the third respondent as a director. It directed both groups to submit their offers for purchasing shares, with the higher bidder buying out the other group. The petitioners and respondents were given liberty to realize the purchase consideration from the original transferors. The Registrar of Companies was instructed to ignore statutory returns contrary to these directions. The case was disposed of with directions for both groups to present their offers in closed covers on a specified date.