2004 (5) TMI 616 - Board - Companies Law

Board cancels share allotment, reinstates directors, annuls appointment. Parties advised to settle disputes amicably.

Hansraj Gokuldas Ved and Ors. Versus Nitin Dyeing and Bleaching Mills Private Ltd. and Ors.

The Board canceled the allotment of 426 shares to the 4th respondent, reinstated the petitioners as directors, and annulled the appointment of the 4th ... - Issues Involved:1. Allegations of oppression and mismanagement.2. Allotment of additional shares.3. Vacation of office by the petitioners as directors.4. Appointment of the 4th respondent as a whole-time director.5. Allegations of financial mismanagement and siphoning of funds.6. Dispute regarding the transfer of 44 shares.Detailed Analysis:1. Allegations of Oppression and Mismanagement:The petitioners, holding 317 shares in M/S Nitin Dyeing & Bleaching Mills Private Ltd., alleged oppression and mismanagement. They claimed that additional shares were issued to the 4th respondent without their knowledge, converting them into a minority and excluding them from management. They also alleged siphoning of funds by the respondents.2. Allotment of Additional Shares:The petitioners argued that the issuance of 426 additional shares to the 4th respondent was unnecessary as the factory was closed since April 1999. They contended that the shares were issued to create a new majority, constituting oppression. The respondents claimed the shares were issued to mobilize funds and that the petitioners were not in the majority as claimed.The Board found that the allotment of shares was made with an ulterior motive of increasing the respondents' shareholding. The allotment was done without offering shares to the petitioners, which disturbed the existing shareholding percentage in a family company, constituting oppression. The allotment of 426 shares to the 4th respondent was canceled.3. Vacation of Office by the Petitioners as Directors:The petitioners were alleged to have vacated their office under Section 283(1)(g) of the Act for failing to attend three consecutive Board meetings. The petitioners claimed they did not receive notices for the meetings. The respondents argued that notices were issued as per a resolution passed in a Board meeting.The Board found inconsistencies in the respondents' claims and doubted the genuineness of the Board meeting minutes. It was concluded that the company willfully did not issue notices to the petitioners to attract the provisions of Section 283(1)(g). The petitioners were reinstated as directors.4. Appointment of the 4th Respondent as a Whole-Time Director:The petitioners claimed they did not receive notice for the AGM where the 4th respondent was appointed as a whole-time director. The respondents failed to produce evidence of the petitioners' attendance at the AGM.The Board declared the resolutions passed in the AGM invalid due to the failure to notify the petitioners, who held substantial shares. The appointment of the 4th respondent as a whole-time director was canceled.5. Allegations of Financial Mismanagement and Siphoning of Funds:The petitioners alleged that the respondents misappropriated funds by overstating expenditures and withdrawing substantial amounts from the company's bank account. The respondents argued that the expenditures were legitimate and related to the company's operations.The Board found that the petitioners had approved the annual accounts for the years in question and could not later allege misappropriation. The allegations of siphoning off Rs. 55 lakhs were not supported by details. The Board concluded that the petitioners could not prove financial mismanagement.6. Dispute Regarding the Transfer of 44 Shares:The petitioners claimed the transfer of 44 shares from S.G. Ved HUF to the 1st petitioner was legitimate, supported by transfer forms and bank statements. The respondents contended that the transfer was fraudulent and not approved in any Board meeting.The Board found that the share certificates were in the possession of the 1st petitioner with endorsements of transfer, creating a presumption in favor of the 1st petitioner as the registered shareholder. However, since a criminal case was filed regarding the transfer, the Board did not give a definitive finding on this issue.Conclusion:The Board directed the cancellation of the 426 shares allotted to the 4th respondent and reinstated the petitioners as directors. The appointment of the 4th respondent as a whole-time director was also canceled. The status quo ante regarding shareholdings and the Board was restored. The Board advised the parties to settle the disputes amicably and provided options for settlement. If the respondents choose an option within a month, it will be binding on the petitioners, and further directions will be given to facilitate settlement. If not, the petition will be deemed disposed of by this order.