1974 (2) TMI 97 - HC - Companies Law

Court ruling: Barooah retains directorship, share allotment illegal. Sections 397 & 398 apply. Appeal dismissed.

Tea Brokers (P) Ltd. and Ors. Versus Hemendra Prosad Barooah

The court held that Barooah did not vacate his directorship under section 283(1)(g) of the Companies Act, 1956, as alleged. The allotment of shares to ... - Issues Involved:1. Whether Barooah vacated his office as director under section 283(1)(g) of the Companies Act, 1956.2. Whether the allotment of 1,000 shares to Khaund was bona fide and in the interest of the company or mala fide and intended to gain control of the company.3. Applicability of sections 397 and 398 of the Companies Act, 1956.4. Whether the order directing Barooah to sell his shares to Khaund was justified.Issue-wise Detailed Analysis:1. Whether Barooah vacated his office as director under section 283(1)(g) of the Companies Act, 1956:The court found that Barooah did not vacate his office under section 283(1)(g) as claimed by the appellants. It was established that Barooah had not received notices of the Board meetings held after his re-election on 22 August, 1970, and that he had been granted leave of absence systematically for over a decade, even when he had absented himself for more than three consecutive meetings. The invocation of section 283(1)(g) was found to be mala fide and intended to remove Barooah from the Board.2. Whether the allotment of 1,000 shares to Khaund was bona fide and in the interest of the company or mala fide and intended to gain control of the company:The court held that the allotment of 1,000 shares to Khaund was not made bona fide in the interest of the company. The purported financial crisis cited by the appellants was found to be unsubstantiated. The evidence showed that the company's financial position did not necessitate the urgent raising of funds through the allotment of shares. The allotment was made with the sole intention of reducing Barooah to a minority and gaining control of the company for Khaund and Mitra. The court concluded that this act was mala fide, improper, and invalid.3. Applicability of sections 397 and 398 of the Companies Act, 1956:The court found that the requirements of both sections 397 and 398 were satisfied. The conduct of the company's affairs was deemed oppressive to Barooah, as the majority shareholder was wrongfully reduced to a minority. The wrongful ouster of Barooah from the Board and the allotment of shares to Khaund justified the making of a winding-up order on the just and equitable ground. However, winding up the company would unfairly prejudice Barooah, thereby fulfilling the requirements of section 397. The court also held that the affairs of the company were being conducted in a manner prejudicial to its interests, satisfying the requirements of section 398.4. Whether the order directing Barooah to sell his shares to Khaund was justified:The court held that the order directing Barooah to sell his shares to Khaund was unjust and improper. It would enable Khaund and Mitra to benefit from their wrongful and mala fide acts and would not redress Barooah's grievances. The court emphasized that generally, a majority shareholder should not be directed to sell his shares to the minority group, as it would deprive him of his valuable rights and would not meet the ends of justice. The court set aside the order directing Barooah to sell his shares to Khaund and his group.Conclusion:The appeal was dismissed, and the cross-objection was allowed. The court upheld the order of the learned trial Judge declaring the issue and allotment of 1,000 shares to Khaund as illegal and void. The court also upheld the appointment of a special officer to manage the company's affairs and directed the special officer to call an extraordinary general meeting for electing a new Board of directors. The order directing Barooah to sell his shares to Khaund was set aside, and no order was made directing any party to sell their shares.