Improper Director Removal & Share Allotment Declared Void; Company Directed to Rectify Register & Refund

The Company Law Board found that the removal of directors was improper as the respondents had fabricated records to remove the petitioners. Additionally, the allotment of 180 shares to the respondents was declared null and void due to lack of proper notice and a quorum. The Board directed the company to rectify the register of members, refund the money invested by the allottees, and provide proper notice to the petitioners for future meetings. The allegations of financial mismanagement by both parties were not further investigated.

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Issues Involved:
1. Removal of directors.
2. Allotment of additional shares.
3. Alleged siphoning of funds and financial mismanagement.

Detailed Analysis:

1. Removal of Directors:
The petitioners, who held majority shares, alleged that they were removed as directors without proper notice. They contended that they did not receive any notice for board meetings and hence could not have been absent for three consecutive meetings as required under Section 283(1)(g) of the Companies Act, 1956. The respondents argued that the petitioners ceased to be directors by operation of law due to their absence from three consecutive meetings. However, the Company Law Board found inconsistencies in the respondents' records, noting that the attendance slips were reconstructed and did not bear the petitioners' signatures. It was also observed that the respondents' notices in newspapers stated that the petitioners were removed, not that they vacated their office by operation of law. The Board concluded that the respondents had fabricated the records to remove the petitioners and held that the petitioners had not ceased to be directors by operation of law.

2. Allotment of Additional Shares:
The petitioners claimed that 180 additional shares were allotted to the respondents without their knowledge, reducing their majority from 57% to 16%. The respondents contended that the allotment was made with the petitioners' consent in a board meeting. However, the Company Law Board found that the minutes of the meeting were fabricated as the attendance slips did not bear the petitioners' signatures and the additional directors who were allotted the shares had signed attendance slips for meetings held before their appointment. The Board concluded that the allotment of shares was done without proper notice to the petitioners and without a quorum, and thus declared the allotment as null and void.

3. Alleged Siphoning of Funds and Financial Mismanagement:
Both parties accused each other of financial mismanagement. The petitioners alleged that the respondents siphoned off funds, while the respondents claimed that the petitioners collected money on behalf of the company and did not account for it. The Company Law Board noted that both sides lacked full particulars and materials to support their allegations and decided not to delve into these claims.

Conclusion:
The petition was disposed of with the findings that the allotment of 180 shares was void and the petitioner-directors had not vacated their office as directors. The company was directed to rectify the register of members by deleting the names of those to whom shares were allotted on 15.9.1997 and refund the money invested by them. The company was also instructed to give proper notice to the petitioners for all board and general body meetings.

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