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of <h1>Court deems removal of Managing Director oppressive to minority shareholders due to familial ties in Company. Fair exit option provided.</h1> <h3>A.H. Ahmed Jaffer Versus ACE Rubber and Allied Products Private Limited and H.M. Shamsudeen</h3> A.H. Ahmed Jaffer Versus ACE Rubber and Allied Products Private Limited and H.M. Shamsudeen - [2004] 52SCL 350 (CLB) Issues Involved:1. Exclusion from management2. Non-convening of meetings3. Failure to render accounts and settle dues4. Improper management and statutory violations5. Validity of removal of the petitioner as Managing DirectorIssue-wise Detailed Analysis:1. Exclusion from Management:The petitioners alleged that their group was excluded from the management of the Company despite being part of it since its inception. The petitioner's father and the second respondent's father were the promoters of the Company, and the petitioner's father was the Managing Director until his demise. The petitioner was subsequently appointed as Managing Director. However, the second respondent, who was a director and claimed to be the Chairman, managed the affairs of the Company without convening any Board or general meetings, thereby excluding the petitioners from management.2. Non-convening of Meetings:The second respondent did not convene or hold any general, annual general, or Board meetings since June 1990 and did not issue notices for such meetings. This resulted in the shareholders being kept in the dark about the Company's affairs. The second respondent also failed to file statutory returns with the Registrar of Companies and did not issue share certificates in conformity with the Companies (Issue of Share Certificates) Rules, 1960.3. Failure to Render Accounts and Settle Dues:The second respondent failed to render accounts of the Company and settle dues with financial institutions out of the sale proceeds of the Company's assets. The petitioner alleged that the second respondent received sale consideration from third parties but failed to remit the proceeds towards the Company's dues with PIPDIC. The petitioner was not allowed to authenticate the accounts of the Company, and the Income Tax returns were mostly filed by the second respondent.4. Improper Management and Statutory Violations:The second respondent managed the Company's affairs contrary to the Articles of Association by not convening meetings and failing to comply with statutory requirements. The balance sheets and profit and loss accounts were prepared and signed by the second respondent alone, violating Section 215 of the Companies Act, which requires the Managing Director and another director to sign these documents. The statutory auditor was appointed without consulting the petitioner, contravening Section 227 of the Act. The second respondent and the statutory auditor were held jointly responsible for the Company's state of affairs, violating Sections 166, 169, 215, and 220 of the Act.5. Validity of Removal of the Petitioner as Managing Director:The second respondent issued a notice convening an extraordinary general meeting to remove the petitioner as Managing Director and appoint the second respondent's brother in his place. The petitioner challenged the validity of this notice, arguing that no Board meeting was convened to approve the extraordinary general body meeting and that the special notice requirement under Section 190 was not met. The petitioner filed civil suits seeking to restrain the second respondent from convening the meeting. Despite these suits, the second respondent proceeded with the meeting and removed the petitioner, which was deemed an act of oppression.The judgment concluded that the removal of the petitioner was oppressive to the minority shareholders, especially given the family nature of the Company. The petitioner was given the option to either continue on the Board or exit the Company with fair consideration for his shares. The statutory auditor was directed to compute the fair value of the petitioner's shares if he chose to exit, and the Company was authorized to reduce its share capital accordingly. The petition was disposed of with these directions.
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