Board defers petition decision pending key rulings on share cancellation and relief withdrawal

The Board deferred the final adjudication of the petition pending decisions from the Directorate of Enforcement on share cancellation validity and the High Court of Madras on relief withdrawal in O.S. No. 139/2012. The Board will review the petition once these decisions are made, emphasizing the need to assess the oppressive nature of the amended Articles of Association.

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Issues Involved:
1. Amendment to the Articles of Association and its implications.
2. Allegations of mismanagement and financial impropriety.
3. Cancellation of shares and compliance with FDI policy and FEMA regulations.
4. Validity of Board Meetings and resolutions passed.
5. Specific performance of the Memorandum of Understanding (MoU).
6. Legal proceedings and their impact on the company's management.

Detailed Analysis:

1. Amendment to the Articles of Association and its implications:
The petitioners alleged that the amendments made to the Articles of Association on 19.03.2003 were oppressive. The amended clauses allowed Imprint Tech India Ltd. (R-4) to nominate two Directors to the Board, and PV to act as the Chairman and Managing Director with significant powers, including a casting vote and entitlement to 11% of the net profits as remuneration. The petitioners claimed these amendments served only the interests of R-2 and were used by PV to award himself increased remuneration unjustifiably, despite a decline in the circulation of magazines and no corresponding increase in profits. The Board Meetings approving these remunerations were attended by AJP, and the resolutions were signed by him. Despite objections, PV used his casting vote to approve the accounts.

2. Allegations of mismanagement and financial impropriety:
The petitioners contended that PV mismanaged the company, leading to defaults under the Export Promotion Capital Goods (EPCG) scheme, causing significant losses. Additionally, the company purchased an LED panel from a firm owned by PV without prior approval from the Central Government, at an inflated price, indicating siphoning off funds. A criminal complaint was filed by AJP against PV for misappropriation and forgery, but the police investigation found no case of forgery.

3. Cancellation of shares and compliance with FDI policy and FEMA regulations:
PV convened a Board Meeting on 20.09.2011, where it was resolved to cancel AJP's shareholding, except for 200 shares, citing violations of FDI policy, FEMA, and guidelines from the Ministry of Information & Broadcasting. The cancelled shares were retained in an escrow account. The petitioners argued that this cancellation was done in bad faith and without compliance with sections 100 and 101 of the Companies Act, 1956. The Board decided to await the Directorate of Enforcement's adjudication on the matter before making a final decision.

4. Validity of Board Meetings and resolutions passed:
The petitioners convened a Board Meeting on 26.09.2011, which the respondents did not attend. Subsequently, two parallel Board Meetings were held on 10.10.2011, one by AK and the other by PV. PV's meeting resulted in the cancellation of AJP's shares and ousting of the petitioners from directorship due to non-attendance in consecutive meetings. The High Court of Madras restrained PV from taking policy decisions for the company. The petitioners' resolutions to remove PV and appoint AK as Managing Director were communicated to PV.

5. Specific performance of the Memorandum of Understanding (MoU):
A MoU was entered into on 15.08.2010 between AJP, AK, and Imprint Tech India Pvt. Ltd. (R-4), for R-4 to transfer its shareholding to AJP and AK, and for R-2 and R-3 to resign as Directors. The MoU was not implemented, and the petitioners filed a suit for specific performance. The High Court of Madras is yet to decide on the withdrawal of certain reliefs sought in the suit, which overlap with the present petition.

6. Legal proceedings and their impact on the company's management:
The petitioners filed civil suit No. 7554/2011 against Indian Bank, seeking to paralyze R-2's management of the company. The High Court of Madras stayed the ex-parte injunction obtained by the petitioners and directed the impleadment of R-1 to R-3. The Supreme Court's order in SLP Civil No. 6358/6383 of 2012 highlighted the petitioners' lack of probity in not including necessary parties in the suit. The petitioners' conduct in filing the suit and subsequent withdrawal without seeking liberty to pursue the CLB proceedings was considered malafide and detrimental to the company.

Conclusion:
The Board deferred the final adjudication of the petition, awaiting the Directorate of Enforcement's decision on the validity of AJP's share acquisition and cancellation, and the High Court of Madras's decision on the withdrawal of certain reliefs in O.S. No. 139/2012. The petition will be placed before the Board for final adjudication once these decisions are made. The Board also noted the need to consider the harshness and oppressiveness of the amended Articles of Association at the time of final adjudication.

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