Court allows appeal, sets aside CLB order, directs net worth assessment, outlines dispute resolution mechanism. Stay prayer rejected.

The appeal was allowed, setting aside the CLB's order. The court directed the assessment of the company's net worth and outlined a mechanism to resolve the shareholding dispute in accordance with the Family Settlement. The respondent's prayer for stay was rejected.

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Issues Involved:
1. Removal of AKM and his son from directorship.
2. Allegations of misappropriation of funds.
3. Increase in shareholding without notice.
4. Validity of the Annual General Meeting (AGM) held on 20th August, 2004.
5. Compliance with statutory requirements and family settlement.

Detailed Analysis:

1. Removal of AKM and his son from directorship:
The appellant argued that AKM and his son were removed from directorship due to their absence from three consecutive board meetings as per Section 283 of the Companies Act, 1956. Notices were allegedly sent to their last known addresses and published in the Financial Express. The court found that the Company Law Board (CLB) acted perversely by not allowing the sur-rejoinder which contained evidence of notice service. Therefore, the court set aside the CLB's finding that the removal was invalid.

2. Allegations of misappropriation of funds:
The respondent AKM alleged misappropriation through traveling expenses, liabilities created, and sale of plant and machinery. The appellant PKM provided explanations and evidence, including audited balance sheets, which were not challenged by AKM. The court criticized the CLB for not verifying the accounts or considering the provided evidence, deeming its findings on misappropriation as perverse. Consequently, the court overturned the CLB's directive for PKM to repay the alleged misappropriated amounts.

3. Increase in shareholding without notice:
The respondent AKM claimed that the increase in shareholding was without proper notice and aimed to reduce him to a minority. The appellant argued that notices were sent and the increase was necessary to inject funds into the defunct company. The court noted that notices were indeed sent and AKM's non-attendance at the meeting was at his own risk. The court found no evidence of oppression or misuse of power in the share allotment and set aside the CLB's findings on this issue.

4. Validity of the AGM held on 20th August, 2004:
The appellant contended that all statutory requirements for the AGM were met, including notice publication and service under certificate of posting. The court agreed, stating that the CLB acted perversely by not considering the sur-rejoinder and the evidence of notice service. The court upheld the validity of the AGM and the decisions taken therein.

5. Compliance with statutory requirements and family settlement:
The court emphasized the importance of the Family Settlement of 2001, which contemplated the sale of the company and its assets. The appellant PKM's actions to keep the company afloat were deemed necessary due to AKM's non-cooperation. The court criticized the CLB for ignoring the Family Settlement and not considering the expenses borne by PKM to meet statutory requirements. The court directed the net worth of the company to be assessed by M/s. Singhi & Co., and offered the parties the option to buy or sell shares based on this assessment to prevent a deadlock.

Conclusion:
The appeal was allowed, and the CLB's order dated 30th March, 2006, was set aside. The court directed the assessment of the company's net worth and provided a mechanism for resolving the shareholding dispute in line with the Family Settlement. The court rejected the respondent AKM's prayer for stay.

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