Tribunal Invalidates Resolutions, Orders Investigation into Company Affairs

The Tribunal declared resolutions passed by certain respondents as invalid due to violations of the Companies Act, 1956. An independent chairman and auditor were appointed to investigate the company's affairs and assess its liabilities and assets. Statutory violations were found, leading to recommendations for prosecution. Share transfer actions were deemed illegal, and allegations of mismanagement and oppression were noted. A valuation report was deemed binding, allowing parties to buy/sell shares based on it. The board of directors was restored, and parties were advised to resolve disputes amicably. No costs were awarded.

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Issues Involved:
1. Validity of resolutions passed by the board of directors.
2. Appointment of an independent chairman and auditor.
3. Investigation into the affairs of the company.
4. Transfer of shares.
5. Allegations of mismanagement and oppression.
6. Valuation of shares for buyout purposes.
7. Prosecution for statutory violations.

Issue-wise Detailed Analysis:

1. Validity of Resolutions Passed by the Board of Directors:
The petitioner in C.P. No. 64 of 2007 sought to declare the resolutions passed by respondents Nos. 2 to 6 in the board meeting held on July 24, 2007 as illegal and void ab initio. The resolutions in question included the appointment of Dr. P. S. Bhat as managing director, the retention and pro-rata allotment of transferred shares, and the extension of the term of office of directors. The Tribunal found these resolutions to be in gross violation of the Companies Act, 1956 and the company's articles of association, thus declaring them invalid and not binding on the company.

2. Appointment of an Independent Chairman and Auditor:
In C.P. No. 77 of 2010, the petitioners sought the appointment of an independent chairman and auditor to inspect the books of account and investigate the affairs of the company. The Tribunal appointed Shri Ameerul Millath S. M. as the independent chairman and Shri R. Thiyagarajan as the statutory auditor to audit the books of account for the financial years from April 1, 2007 to March 31, 2013. This was done to ascertain the exact liabilities and assets of the company.

3. Investigation into the Affairs of the Company:
The petitioners in C.P. No. 77 of 2010 alleged that respondent No. 2 had siphoned off funds and diverted business to a new entity, Mangalore Heartscan Foundation. The Registrar of Companies, Karnataka, conducted an inspection and found several statutory violations, recommending prosecution under various sections of the Companies Act, 1956. The Tribunal granted liberty to statutory authorities to take appropriate action based on their findings.

4. Transfer of Shares:
The transfer of shares by respondent No. 8 to other shareholders was contested. The board's decision to retain and pro-rata allot these shares was found to be in violation of the company's articles of association and the Companies Act, 1956. The Tribunal declared the board's actions regarding the share transfer as illegal and void.

5. Allegations of Mismanagement and Oppression:
Both petitions contained numerous allegations of mismanagement and oppression. The Tribunal noted that these allegations led to a deadlock in the company's management, affecting its financial stability and reputation. The Tribunal emphasized the need for an amicable resolution and the restoration of the board of directors as it existed prior to the initiation of the cases.

6. Valuation of Shares for Buyout Purposes:
The Tribunal appointed Shri Subhash Chandra Salian to conduct a valuation of the company's assets and liabilities. The valuation report, submitted on September 6, 2018, assessed the share value at Rs. 520 per equity share. Despite disputes from both parties, the Tribunal found the valuation report to be based on sound financial principles and declared it binding on both parties.

7. Prosecution for Statutory Violations:
The Registrar of Companies, Karnataka, identified several statutory violations during their inspection, including issues related to section 260, section 285, section 3(1)(iii)(d), section 58A, section 209(1)(c), section 297, AS-15, section 224(1A), section 303(2), section 159, and section 220 of the Companies Act, 1956. The Tribunal granted permission for the Registrar to launch prosecutions based on these findings.

Conclusion:
The Tribunal disposed of both company petitions with the following directions:
1. The valuation report dated September 6, 2018, is declared legal and binding.
2. Both parties are at liberty to buy/sell their shareholding based on the valuation report.
3. The board of directors is restored as it existed prior to the initiation of the cases.
4. The independent chairman's services are discharged.
5. Statutory authorities are at liberty to initiate appropriate action based on their findings.
6. The Tribunal advised the parties, being reputed doctors, to resolve the matter amicably and focus on their medical practice rather than litigation.
7. No order as to costs.

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