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Ram Parshotam Mittal & Ors. v. Hotel Queen Road Pvt. Ltd. & Ors.

Civil Appeal · 2019 INSC 678Decided 10 May 2019
Civil Appeal No. 3934 of 2017
Justice Arun Mishra · Justice Indira Banerjee

Background

After the Government of India disinvested a hotel property (Indraprastha Hotel, New Delhi) to a special purpose company, Hotel Queen Road Pvt. Ltd. (HQRL), control passed to the Mittal family group through their company Moral Trading. A dispute arose when Moral/the Mittals allotted and transferred shares to themselves through board resolutions in 2004-05 without giving notice to a fellow director, Ashok Mittal (brother of appellant R.P. Mittal), who along with preference shareholder Hillcrest Realty alleged these allotments were oppressive and in violation of the Companies Act. The Company Law Board initially dismissed the complaint, but the Delhi High Court reversed this, cancelling the share allotments and transfers.

Decision Breakdown

The Supreme Court upheld the High Court's decision, agreeing that the three board resolutions (dated 27.7.2004, 7.1.2005 and 10.5.2005) were invalid because no notice was given to director Ashok Mittal as required under Section 286 of the Companies Act, and because interested directors (R.P. Mittal and his wife) participated in decisions benefiting themselves, violating Section 300. The transfer of shares on 10.5.2005 also violated Section 108, since HQRL did not have the proper share certificates on record at the time. The Court found this pattern of conduct oppressive to the minority shareholder and declined to interfere with the High Court's order, though it set aside the High Court's separate direction to prosecute R.P. Mittal under Section 340 Cr.P.C.

Lesson Learnt

Company directors who are personally interested in a transaction cannot vote on it, and board decisions taken without proper notice to all directors can be struck down as invalid and oppressive, even many years after the fact, regardless of how complex or long-running the underlying corporate dispute has become.

Official source (sci.gov.in)View Judgment (PDF)

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