Tribunal Invalidates Share Cancellation, Orders Restoration and Deletion

The Tribunal declared the cancellation of 3,32,440 shares held by the 1st petitioner as invalid and ordered their restoration. The removal of petitioners from directorship was deemed oppressive and invalid, with the Form-32 for their removal declared illegal. Amendments to the Articles of Association entrenching the position of R2 were ordered to be deleted. While most allegations of mismanagement were not upheld, the respondents' conduct was found oppressive. The Tribunal directed rectification of the Register of Members, restoration of shares, deletion of specified clauses, appointment of additional directors, and the implementation of orders by a Chairman for six months.

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Issues Involved:

1. Cancellation of Shares.
2. Removal of Directors.
3. Amendments to Articles of Association.
4. Allegations of Oppression and Mismanagement.

Issue-Wise Detailed Analysis:

1. Cancellation of Shares:
The petitioners argued that the cancellation of 3,32,440 shares held by the 1st petitioner was done without proper consent and in violation of Section 100 of the Companies Act, 1956. The respondents contended that the shares were cancelled due to violations of FEMA and FDI regulations. However, the FIPB and RBI clarified that there was no violation in the acquisition of shares as they were held on a non-repatriation basis. The adjudicating authority also did not order the confiscation of shares but imposed penalties on the company and its directors. The Tribunal held that the cancellation of shares was invalid and non-est in law, and ordered the rectification of the Register of Members to restore the shares to the 1st petitioner.

2. Removal of Directors:
The petitioners were removed from directorship for not attending three consecutive board meetings. The petitioners argued that the meetings they convened were inquorate due to the absence of R2, and hence, they did not miss three consecutive meetings. The Tribunal found that the removal of the petitioners from directorship was oppressive and invalid, especially given that the cancellation of shares had already reduced them to a minority. The Form-32 filed for their removal was declared illegal and non-est in law.

3. Amendments to Articles of Association:
The amendments to the Articles of Association (Clauses 31(a), 32, and 39(b)) were made to entrench the position of R2 and were oppressive to the petitioners. These clauses allowed R2 to remain as Managing Director and draw remuneration up to 11% of the net profits, among other privileges. The Tribunal ordered the deletion of these clauses, finding them against the interest of the majority shareholders.

4. Allegations of Oppression and Mismanagement:
The petitioners alleged several instances of mismanagement, including failure to meet export obligations under the EPCG Scheme, excessive remuneration to R2, and related party transactions without proper approvals. The Tribunal did not find merit in most of these allegations, either because they were business decisions that went wrong or because the petitioners themselves were part of the Board when these decisions were made. However, the Tribunal noted that the overall conduct of the respondents was oppressive, especially in the context of the cancellation of shares and removal from directorship.

Summary of Orders:
1. The cancellation of 3,32,440 equity shares of Rs. 100/- each held by the 1st petitioner is declared illegal, invalid, and non-est in law.
2. The Register of Members of the R1 Company is to be rectified to restore 3,32,640 equity shares of Rs. 100/- each in the name of the 1st petitioner.
3. The Form-32 filed by the R2 with RoC, Chennai, regarding the cessation of petitioners as directors of the R1 Company with effect from 02.01.2012 is declared illegal and non-est in law.
4. Clauses 31(a), 32, and 39(b) of the Articles of Association are ordered to be deleted.
5. The petitioners are allowed to nominate two more Directors in the Board of Directors of the R1 Company, bringing the total number of Directors to six.
6. A Chairman is appointed for six months to implement the orders of the Tribunal.

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