Company Law Board: single majority in shares will hit democratic functioning
NEW DELHI: The Principal Bench of the Company Law Board (CLB) on Monday held that the allotment of 10,208 shares of Rs. 100 each of the United News of India (UNI) in favour of Media West was null and void and not binding on the UNI.
CLB chairman S. Balasubramanian passed the final order on a company petition filed by ABP Private Ltd; Manipal Media Network; Kasturi and Sons Ltd. and the Printers (Mysore) Ltd. for a declaration that the resolution purported to have been passed at the UNI Board meeting on September 2, 2006 relating to allotment of 10,208 shares of Rs. 100 in favour of Media West Private Ltd. was “illegal, null and void.”
In its 41-page order, the CLB said: “It is an admitted fact that in the UNI, notwithstanding that there is no restriction on the number of shares that a member can hold, there has never been a single majority in the nearly 40 years of UNI’s existence and, therefore, creation of an absolute majority now is definitely a deviation from the long standing practice.”
It said: “In a company, where there is no single majority, the affairs of the company would be carried on more democratically, which position has now been affected by creation of a single majority by the allotment of impugned shares. Therefore, the shareholders can legitimately voice a grievance of oppression.”
The petitioners had contended that the purported allotment of shares in favour of Media West at the September 2, 2006 UNI Board meeting was ultra vires the Articles of Association of the company, which provided “that no share or shares shall be allotted or transferred to any person other than the owner of any newspaper in India, and Media West not being an owner of a newspaper published in India is not eligible or competent to acquire shares in the company.”
The CLB held that as the Board had not specifically considered the eligibility of Media West to become a member, it could not have allotted the shares to Media West, and that impugned acts had changed the character of the UNI and that the entire exercise suffered from lack of transparency.
The CLB said, “Consequently, Media West ceases to be a member and, therefore, it has become ineligible to have its nominees on the Board. Accordingly, its nominees shall cease to be additional directors with immediate effect.”
The CLB pointed out that the admitted position was that the UNI was in financial distress.
Now that the allotment had been declared as null and void, consequent to which the company would be deprived of funds, it was now the responsibility of the Board, more particularly the petitioners, to find ways and means to mobilise funds either by way of subscribing to the shares, if offered or by way of long term loans, or in any other manner.