Share Allotment and Director Removal Nullified; New Board Formed; Chartered Accountant Appointed for Financial Audit.

The Board declared the allotment of 50,000 shares to respondents 2 and 3 and the transfer of 40,000 shares to the ninth respondent invalid, reducing the paid-up capital to Rs. 25,00,000. The petitioners' removal as directors was nullified, and the Board was reconstituted to include them and the second respondent. An independent Chartered Accountant was appointed to verify payments and expenses for reimbursement. The parties were instructed to submit closed offers for share purchase, with the highest bidder acquiring the shares from other groups. The company petition concluded with directions for consequential orders on 15.12.2004.

---

---

Issues Involved:
1. Validity of the allotment of 50,000 equity shares to respondents 2 & 3.
2. Validity of the transfer of 40,000 equity shares to the ninth respondent.
3. Validity of the appointment of respondents 3 & 4 as directors.
4. Alleged vacation of office by the second respondent as director.
5. Direction to convene a general meeting to elect new directors.
6. Setting aside the acts performed by respondents 2 to 4 as directors.

Summary of Judgment:

1. Validity of the Allotment of 50,000 Equity Shares:
The petitioners alleged that the allotment of 50,000 equity shares to respondents 2 & 3 was invalid due to lack of notice and consideration, and was aimed at gaining undue advantage. The Board found that the allotment was not in compliance with legal requirements and lacked fair play, resulting in the enhancement of the second respondent's shareholding, constituting an act of oppression. The allotment was declared invalid.

2. Validity of the Transfer of 40,000 Equity Shares:
The petitioners argued that the transfer of 40,000 equity shares to the ninth respondent violated pre-emption clauses in the articles of association. The Board found that there was no evidence of compliance with the pre-emption rights and that the transfer was approved by interested directors, constituting an act of oppression. The transfer was declared invalid.

3. Validity of the Appointment of Respondents 3 & 4 as Directors:
The petitioners challenged the appointment of respondents 3 & 4 as directors. The Board did not delve into the validity of this appointment due to the ultimate reliefs proposed.

4. Alleged Vacation of Office by the Second Respondent:
The petitioners claimed the second respondent vacated office u/s 283(1)(g) of the Act. The Board did not address this issue as the petitioners did not press this prayer.

5. Direction to Convene a General Meeting:
The petitioners sought to convene a general meeting to elect new directors. The Board ordered the reconstitution of the Board of Directors to include the petitioners and the second respondent.

6. Setting Aside Acts Performed by Respondents 2 to 4:
The petitioners sought to set aside acts performed by respondents 2 to 4 as directors. The Board ordered verification of payments made towards deposits and expenses by an independent Chartered Accountant, and reimbursement with interest.

Final Order:
1. The allotment of 50,000 shares to respondents 2 & 3 and the transfer of 40,000 shares to the ninth respondent were declared invalid, reducing the paid-up capital to Rs. 25,00,000.
2. The removal of the petitioners from the office of director was declared null and void.
3. The Board of Directors was reconstituted to include the petitioners and the second respondent.
4. An independent Chartered Accountant was appointed to verify payments and expenses, with reimbursement to be made by the Company.
5. The parties were directed to submit their offers in closed covers indicating the price per share they were willing to offer, with the highest bidder to purchase the shares of the other group(s).

The company petition was disposed of with directions for consequential orders to be passed on 15.12.2004.

---