2008 (6) TMI 631 - Board - Companies Law

Court rules in favor of petitioner, deems share allotments illegal and oppressive. Orders reinstatement, audit, and compensation.

Ram Babu Versus Target Constructions Pvt. Ltd. and Ors.

The court found in favor of the petitioner, ruling the illegal share allotments and appointments as oppressive acts. It set aside the allotment and ... - Issues Involved:1. Illegal allotment of shares.2. Removal of directors.3. Manipulation of accounts and siphoning off of funds.4. Illegal appointment of additional directors.5. Non-maintenance of statutory records and non-holding of AGMs.6. Shifting of registered office.7. Involvement of a non-director in the company's affairs.8. Maintainability of the petition and preliminary objections.Issue-wise Detailed Analysis:1. Illegal Allotment of Shares:- The petitioner alleged the illegal allotment and transfer of shares by R-2 without proper authorization or payment. The return filed with the ROC was fabricated as it did not bear the petitioner's signature, and no board meeting was convened for such allotment. The court found the allotment of 1,00,000 shares and the transfer of 20,132 shares to be illegal and a serious act of oppression, as there was no payment of consideration, and the documents were fabricated.2. Removal of Directors:- The petitioner claimed that his resignation was fabricated using blank signed papers given for business purposes. The court noted that the resignation letter contained inaccuracies and was not supported by valid board meeting minutes. The removal of the petitioner and R-3 as directors was deemed illegal and set aside.3. Manipulation of Accounts and Siphoning Off of Funds:- The petitioner alleged that the accounts were manipulated, and funds were misappropriated by R-2 and R-11. The respondents failed to produce up-to-date statements of accounts or refute the allegations of misappropriation. The court directed the appointment of an independent auditor to investigate the accounts and restore any siphoned amounts.4. Illegal Appointment of Additional Directors:- The petitioner contended that the appointment of R-4 to R-10 as additional directors was illegal as no board meeting was held, and the appointments violated the Articles of Association. The court found the appointments to be illegal and set them aside.5. Non-maintenance of Statutory Records and Non-holding of AGMs:- The petitioner highlighted that the company had not prepared or audited its accounts since 2003-04, nor held AGMs, exposing the company to penalties. The court noted that the respondents failed to maintain statutory records and finalize accounts, attributing the non-preparation to the petitioner without substantiation.6. Shifting of Registered Office:- The petitioner alleged that the registered office was shifted to R-2's residence without proper authorization. The court found the shifting to be illegal as there was no valid board resolution, and the alleged minutes did not bear the petitioner's signature. The shifting was canceled.7. Involvement of a Non-director in the Company's Affairs:- The petitioner alleged that R-11, a state government employee and husband of R-2, was involved in the company's day-to-day affairs, acting as a de facto director. The court found that R-11 was indeed involved and held him liable for acts of oppression and mismanagement.8. Maintainability of the Petition and Preliminary Objections:- The respondents argued that the petition did not satisfy the conditions under Sections 397 and 398 of the Companies Act, as the company was a glorified partnership with no public interest involved. The court rejected this objection, stating that acts of oppression against members also attract the provisions of these sections. The court found the petition maintainable and dismissed the preliminary objections.Conclusion:- The court granted the prayers contained in the petition, setting aside the illegal appointments and share allotments, reinstating the petitioner and R-3 as directors, and ordering an independent audit of the company's accounts. The shifting of the registered office was canceled, and the petitioner was given the option to exit the company on receipt of fair valuation of his shares and dues. The petition was disposed of in these terms, with all interim orders vacated and no order as to costs.