allotment of shares, appointment of Managing Director

Ashok Kumar And Others v. Shree Janki Cold Storage P. Ltd And Others [2010] 153 Comp Cas 222 (CLB)

In the above case there were three main issues before the Company Law Board (‘CLB’):

Whether allotment of shares can be made without proper application and notice of Board meeting not issued to all Directors?

Whether appointment of Managing Director was to be held null and void if notice not sent to all the directors?

Whether Annual General Meeting (‘AGM’) convened in accordance with the directions of CLB, the conduct of such meeting do not deserve to be given any credence?

Facts: In the case above petition is filed u/s 397/398 of the Companies Act, 1956.  The petitioner argued that the allotment of shares to respondents, appointment of respondent as Managing Director and appointment of respondent as director in AGM  were null and void.

The petitioners were the majority in the board of the company, and they came to knew about the allotment of shares at premium to respondents. Petitioners argued that this allotment was done to reduce them to minority.

The petitioners further argued that appointment of respondent as the Managing Director was also not valid as no notice of meeting was sent to directors.

The petitioner’s another issue was of AGM conducted under the directions of CLB and under the supervision of the special officer appointed, should not be considered as valid.

Decision: CLB observed that no money was received by the company from the allottees and the respondents did not furnish any details relating to the allotment made and no application for the allotment was made.  CLB held that no shares could be allotted without a formal application. No shares could be allotted as  the petitioners constitute majority in the board. The allotment of shares was accordingly to be cancelled.

Respondent did not produce any proof of having sent any notice of AGM, did not file form 32 in accordance with the prescribed period due to which is appointment is considered as null and void.

The AGM was convened and held in accordance with the directions of CLB, therefore the allegation of the respondents relating to conduct of the AGM is valid.

The petition is disposed of in the above terms.