An allotment of shares issued without providing mandatory notice and pre-emptive rights to existing shareholders is illegal. Such actions, when intended to dilute minority interests and exclude them from management, constitute oppression and mismanagement, warranting the declaration of such allotments as null and void.

ORDER

PER: MANNI SANKARIAH SHANMUGA SUNDARAM, MEMBER (J)

[C.P. NO. 21 (ND) 2009]

1. The Present Application has been filed by the Applicant under Section 397. 398 & 402 of Companies Act, 1956 now Sections 241, 242, and 244 of the Companies Act against the respondents with the following relief:

i. To declare that the reduction of shareholding of the Petitioner illegal and void ab initio.

ii. To declare that the allotment of new/fresh shares by the Respondent Company after the year ending March, 2006 to be null and void ab initio.

iii. Appointing an Administrator to take over the charge and control of the affairs and management of the Respondent Company and administer over its affairs under the instructions and directions of this Hon'ble Board.

iv. Directing the Administrator appointed by this Hon'ble Board to seize control of and take possession of all records pertaining to the Respondent Company.

v. Ordering investigation under section 237 (b) of the Act into the affairs of the Respondent Company.

vi. Appointing an Inspector to investigate into affairs of the Respondent Company.

vii. Declaring the appointment of Respondents No. 2 to 4 as Directors illegal/invalid and appointed without any legal sanction or authority.

viii. Declaration of all resolutions/acts passed/done by the present Board of Directors of the Respondent Company to be illegal, non-est and void-ab-inito.

ix. Ordering Constitution of new Board of Directors of the Respondent Company with Petitioner as one of the Director.

x. to declare that the funds of the Respondent Company were illegally utilized by Respondents No. 2 to 4 and in contravention to the provision of the law.

xi. to direct Respondents no. 2 to 4 to restore the funds and render the account of financial affairs of the Respondent Company.

xii. To declare the sale of any of the assets of the Company as illegal and cancel all agreements entered into pursuant thereto.

xiii. To declare all sale deeds, agreement to sale, power of attorney etc. executed by the Respondent Company as illegal as being unauthorized and without shareholders approval.

xiv. to order the cost of the petition to be paid by the Respondent NO. 2

2. The contention as averred by the Applicant are as follows:

a. The present authorised share capital of the Respondent Company is Rs. 1,00,00,000/- (Rs. One Crore only) divided into 1,00,000 (One Lakh Equity Shares) having a face value of Rs 100/- (Rupees One Hundred Only) each. The issued, subscribed and paid up capital of the Respondent Company was Rs. 5,47,600/- (Rupees Five Lakhs Forty Seven Thousand Six Hundred only) divided into 5476 fully paid up Equity Shares of Rs. 100/- each.

b. That In the year 2006, the Respondents no. 2 to 4 have increased the share capital of the Respondent no. 1 Company by issuing and allotting to themselves and their family members, 20,000 partly paid-up shares at a nominal value of Rs. 20/- per share. The said increase and allotment to the Respondents no 2 to 4 and their family members has been done without offering the same to the Petitioner and other share-holders of the Company and has been done for extraneous considerations and solely with a view to reduce the Petitioner into a minority.

c. The Applicant has stated in the present Application That the Petitioner holds 2,500 fully paid-up equity shares of Rs. 100/- each in the Respondent no. 1 Company. Before the illegal increase, the shareholding of the Petitioner amounted to 45% of the total issued, subscribe