D RAMAKRISHNA RAO Vs. LRR HATCHERIES PVT LTD

JUDGEMENT

(1.) This intra-Court appeal under Clause 15 of the Letters Patent is directed against the orders of the learned Single Judge, dated 10.7.2001 dismissing the Company Appeal No. 3 of 1999.

(2.) Relevant facts shorn of details, which gave rise for filing this appeal are as under:

(3.) The Company Law Board by its order, dated 26.4.1999 observed that in the Board Meeting held on 8.4.1996 a decision was taken to the effect that the shares should be allotted pro rata basis, but in the Board Meeting held on 11.5.1997, the undistributed 2600 shares were allotted to respondents 2 and 3 at 1000 and 1600 shares respectively as against the decision taken on 8.4.1996. As per Article 5 of the Articles of Association, the Board has the power to allot shares to such persons and on such terms and conditions as the Board may think fit. Since no notice of the Board Meeting had been given to the first appellant even though at the relevant time he was a Director of the Company and that as the normal rule of law is that the decisions taken in a Board Meeting to which notices have not been sent to all directors are invalid, it has to be held that the decision taken in the meeting to allot the shares has to be declared as invalid. Further the Company Law Board observed that the allotment made was not on account of any need for the funds of the Company as it transpired that the shares were allotted in adjustment of certain loans given by these respondents to the Company. After considering the minutes of the meeting relating to the matter, the Board came to the conclusion that the allotment of 2600 shares was made only with a view to gain majority position in the company by the respondents, may be on the ground that the appellants' group gained the majority by alleged unlawful means. But, if the reason for the allotment were to be what the respondents have alleged, then, the proper course of action for them should have been to initiate necessary proceedings to get the acquisition by the appellants invalid and not to allot shares to themselves as a counter action. Therefore, though the Board was of the view to declare the allotment of shares as invalid, but did not do so for the reason that there was no possibility for the parties to continue the business together, and that the appellants would gain majority control and as they had earlier issued a notice for convening an EOGM to remove the respondents as directors, they would be at liberty to do it again which would pave way for further litigation affecting the interests of the company. Since in a petition filed under Sections 397 and 398, the interest of the company should be paramount and considering the pendency of proceedings before the Debts Recovery Tribunal, the Board was of the view to protect the interest of the first respondent-Company by directing one of the groups to go out of the company by selling their shares to the other group. Pending the proceedings, though an agreement was reached between the parties in the presence of the Board, which was recorded by order, dated 22.1.1998, wherein the respondents agreed to go out of the Company by selling their shares to the appellants, the same could not be materialized due to the stand taken by the bank in releasing the personal guarantees given by the respondents. Therefore, the Board was of the view that the only way by which the parting of ways between the groups could be effected is that the appellants' group should sell their shares to the, respondents, who offered a sum of Rs. 325/- per share to the appellants. But, as the said rate was not acceptable to the appellants, the Board considered it appropriate to get the shares of the Company valued by an independent valuer so that there could be no dispute regarding the price payable by the respondents to the appellants. Since Article 13 of the Articles of Association of the Company provides for determination of fair value by the auditors of the company in case of transfer of shares, the Board was of the view that the provisions of the said Article should be applied in valuation of shares to decide the present dispute. In case, it was not acceptable to either of the parties that the auditors of the company should value the shares, the Board gave the option to the parties to suggest a valuer agreeable to both of them so that the Board could appoint him to value the shares, and observing so, the Board disposed of the company petition.