Company Petition No. 26 of 2007. Case: S. Thangaraj and Others Vs Tamilnad Pigments Private Limited and Others. Company Law Board

Case NumberCompany Petition No. 26 of 2007
JudgesSmt. Lizamma Augustine, Member
IssueCompanies Act, 1956 - Sections 397, 398
Citation2012 (3) CompLJ 421 (CLB)
Judgement DateOctober 21, 2011
CourtCompany Law Board


Smt. Lizamma Augustine, Member, (Additional Principal Bench at Chennai)

  1. Tamil Nadu Pigments (P) Ltd (R1) was incorporated on 13.12.1988 with an authorized share capital of Rs. 35,00,000 comprising of 3,50,000 equity shares of Rs. 10 each with an issued, subscribed and paid up equity share capital of Rs. 28,05,000 consisting of 2,80,500 shares of Rs. 10 each. The company is engaged in the business of pigments and machinery plants, implements, tools, etc. Petitioners 1 to 5 together hold more than ten per cent of the issued share capital of R1-company. Second respondent is the managing director and R3 to R7 are shareholders of the company. Even though the company was earning profits till 1997 no dividend was paid to the petitioners. Respondents 4 to 7 constitute more than fifty per cent of the equity share capital of the company. By letter dated 14.12.2004 they represented to the company proposing to appoint two persons, namely, Mrs. U.S. Vijayakumar and Mr. Pradeep Pathak, as directors of the company. On receipt of the letter the company sent a notice to all the shareholders about the convening of the EGM on 4.3.2005. On receiving the letter and notice sent by R4 to R7, petitioners came to know that the company has transferred more than fifty per cent of the shares to R4 to R7 without following the procedures, as prescribed under articles 9 to 17 of the articles of association of the company. Hence, the petitioners sent a reply expressing their views regarding the failure to follow the articles while effecting the transfer of shares. Since the transfer of shares itself is invalid, R4 to R7 are not entitled to recommend the appointment of new directors on the board. The EGM proposed on 4.3.2005 was not held. On 29.1.2005, the company sent a reply stating the reasons for the transfer of more than fifty per cent shares in favour of R4 to R7. The petitioners were also permitted to inspect the registers, books and other records of the company. On inspection it was revealed that the transfer of fifty one per cent shares to SBSC group (R3 to R7) was not approved by the board of directors of the company and, hence, an explanation was called for from the company. It was also revealed from the records that the company held four EGMs between 1991-97 for the purpose of increasing the authorized capital of the company from Rs. 15,00,000 to Rs. 35,00,000 but no notices of such meetings were given to the petitioners. This is in violation of the terms and conditions of the deed of mortgage dated 7.11.1989 executed in favour of Tamil Nadu Industrial Investment Corporation Ltd. (TIIC). It provided that the borrower shall not alter or change the name of the firm or its constitution or otherwise without prior written consent from TIIC and that the constitution of the management of borrower (R1 company) shall not be re-constituted/changed without the prior written approval of TIIC and that transfer of shares by the chief promoters of the borrower should be done with the prior consent of TIIC in writing. The EGM was called for without informing TIIC. Besides, the new directors are supposed to acquire qualification shares as stipulated in article 24 of the articles of association. Respondents 1 and 2 never conducted the board meetings and general meetings in a manner prescribed under law. In reply to the...

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