Applicable Act: The Companies Act, 1956 (The Act)
ALLEGATIONS
The Informant filed a complaint to the Company Law Board (CLB) under Section 397 and 398 of the Companies Act, 1956 accusing Defendants of misappropriation and diversion of funds and mismanagement, Defendant 1 being the Indian arm of the Informant and Defendant 2 being the Managing Director of Defendant 1 company.
BRIEF OF FACTS
The Informant is a German company holding 90% stake in the Defendant 1 company and the balance 10% rests with Defendant 2 being the Managing Director. The Informant was keen to buy the balance stake from Defendant 2.
A shareholder or board member can file a lawsuit under the above sections of the Act for "mismanagement" and "oppression" by the other board members.
Earlier, in August 2011, the Registrar of Companies, Mumbai pulled up against the Defendants for violation of Section 297 which pertains to contracts in which the Director is interested. The defendant entered into such contracts without the prior approval of the Board of Directors and the Central Government required for entering into such contracts.
CONCLUSION
Keeping in view the above facts, the interim prayers were disposed of in the following manner:
1. Defendant 2 has decided to exit out from Defendant 1 company upon receiving a fair valuation of his shares held in the company.
2. Defendant 1 may take such steps as required to hold meeting for approving the Accounts of the company after due notice to Defendant 2 who is directed to remain present and participate in such meeting. He may put on record in writing his protest with the remark "without prejudice to his rights and contentions."
3. The presence of Defendant 2 is must to constitute the quorum for the meeting as required in the AOA and in his absence, the resolution(s) if any, passed may amount as invalid resolution. If he still chooses to remain absent, the meeting may be held and concluded in his absence by the other directors of the Defendant 1 company.
4. The right of Defendant 2 to challenge the truthfulness and accuracy of the accounts and make appropriate submission before the Valuer or such other Forum as he deems fit is kept reserved.
5. Defendant 2 is given the right to express his apprehensions and file objections in the course of the deliberations to be held in the meeting(s).
6. The minutes of meeting(s) shall be circulated not later than 3 days from the date of holding of such meeting(s) and Defendant 2 will be at liberty to file an appropriate application seeking relief(s) in the instant petition if he feels aggrieved.
7. Defendant 2, in the capacity of MD will not take any decisions relating to appointment and termination, transfer, promotion etc. of any employee.
8. The application of the Informant to change the signatories for various bank accounts of Defendant 1 company and determining the mode of operation of such bank accounts, is hereby rejected.
DECISION
With regards to Section 397 and 398 of the Act, the CLB gave its verdict prohibiting Defendant 2 to participate in the competing business.
BRIEF OF FACTS
The Informant is a German company holding 90% stake in the Defendant 1 company and the balance 10% rests with Defendant 2 being the Managing Director. The Informant was keen to buy the balance stake from Defendant 2.
A shareholder or board member can file a lawsuit under the above sections of the Act for "mismanagement" and "oppression" by the other board members.
Earlier, in August 2011, the Registrar of Companies, Mumbai pulled up against the Defendants for violation of Section 297 which pertains to contracts in which the Director is interested. The defendant entered into such contracts without the prior approval of the Board of Directors and the Central Government required for entering into such contracts.
CONCLUSION
Keeping in view the above facts, the interim prayers were disposed of in the following manner:
1. Defendant 2 has decided to exit out from Defendant 1 company upon receiving a fair valuation of his shares held in the company.
2. Defendant 1 may take such steps as required to hold meeting for approving the Accounts of the company after due notice to Defendant 2 who is directed to remain present and participate in such meeting. He may put on record in writing his protest with the remark "without prejudice to his rights and contentions."
3. The presence of Defendant 2 is must to constitute the quorum for the meeting as required in the AOA and in his absence, the resolution(s) if any, passed may amount as invalid resolution. If he still chooses to remain absent, the meeting may be held and concluded in his absence by the other directors of the Defendant 1 company.
4. The right of Defendant 2 to challenge the truthfulness and accuracy of the accounts and make appropriate submission before the Valuer or such other Forum as he deems fit is kept reserved.
5. Defendant 2 is given the right to express his apprehensions and file objections in the course of the deliberations to be held in the meeting(s).
6. The minutes of meeting(s) shall be circulated not later than 3 days from the date of holding of such meeting(s) and Defendant 2 will be at liberty to file an appropriate application seeking relief(s) in the instant petition if he feels aggrieved.
7. Defendant 2, in the capacity of MD will not take any decisions relating to appointment and termination, transfer, promotion etc. of any employee.
8. The application of the Informant to change the signatories for various bank accounts of Defendant 1 company and determining the mode of operation of such bank accounts, is hereby rejected.
DECISION
With regards to Section 397 and 398 of the Act, the CLB gave its verdict prohibiting Defendant 2 to participate in the competing business.
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