2007 (11) TMI 691 - Board - Companies Law

Court declares shareholding transfer illegal, null & void, directs register rectification. Director removal not valid ground. Fraudulent loan adjustment criticized.

M.L. Arora Versus Green Vallay Frozed Food Ltd. and Ors.

The court found the transfer of the petitioner's shareholding to be illegal and fraudulent, declaring it null and void and directing the company to ... - Issues Involved:1. Illegal/Fraudulent Transfer of Petitioner's Shareholding2. Illegal/Fraudulent Removal of Petitioner as Director3. Illegal/Fraudulent Adjustment of Unsecured LoanSummary:1. Illegal/Fraudulent Transfer of Petitioner's Shareholding:The petitioner alleged that his shareholding was transferred to Respondent No. 7 without his consent, and the original share certificates were still in his possession. The respondents argued that the petitioner had signed the transfer deeds and received full consideration. However, the petitioner produced the original share certificates during the hearing, and the respondents failed to produce the original certificates to prove the transfer. The court found that the transfer was done illegally and fraudulently, violating Section 108 of the Companies Act, 1956, and declared the transfer null and void, directing the company to rectify the register of members accordingly.2. Illegal/Fraudulent Removal of Petitioner as Director:The petitioner claimed that his removal as a director was illegal and based on a blank resignation letter handed over to the respondents. The respondents contended that the petitioner had resigned voluntarily and used the resignation letter to get his collateral security released from the bank. The court noted that directorial complaints are generally not grounds for a petition u/s 397/398 unless in the case of family companies or companies in the nature of partnership. The court found that the petitioner had resigned on his own and did not grant relief on this ground.3. Illegal/Fraudulent Adjustment of Unsecured Loan:The petitioner argued that his unsecured loan of Rs. 14,77,124/- was adjusted fraudulently in the company's books based on a non-existent 'Written Settlement Agreement.' The respondents failed to produce the agreement despite repeated opportunities. The court noted the continuous oppression due to the illegal adjustment and found the respondents' actions objectionable.Conclusion:The court dismissed the preliminary objections raised by the respondents regarding the petitioner's qualification u/s 399 of the Act and the maintainability of the petition. The court set aside the illegal transfer of the petitioner's shareholding and directed the company to rectify the register of members. The petitioner's removal as a director was not considered a valid ground for relief in this petition. The petition was disposed of with the above directions, and all interim orders were vacated.