Activities against the provision of the Article is to be treated as oppression and mismanagement and falls under sec 397/398 of the Companies Act.

Court :
COMPANY LAW BOARD

Brief :
This company was incorporated in 1948 with registered office at Calcutta. The authorized capital of the company was Rs. 10 lacs consisting of 4000 6% tax free redeemable cumulative preference shares of Rs. 100/-each and 6000 ordinary shares of Rs. 100/-each. The paid up capital of the company, before issue of new and bonus shares, consisted of 4132 ordinary shares of which Rs.45 was partly paid and 1868 fully paid ordinary shares and 3065 fully paid preference shares. These 4132 partly paid shares were originally held in the name of one M/S Gupta Brothers on which Rs.25/- had been paid. In the year 1966, these shares were forfeited and the petitioners became the shareholders in respect of these shares in 1986 on reissue of these to them. According to the respondents, these shares were issued to the petitioners on account of M/sGupta Bros and therefore they were liable to pay the interest attributable to Gupta Bros for non payment of the calls made on them, while according to the petitioners, these shares were held in their own names for their own benefits. It is alleged by the petitioners that without notice to the petitioners, the authorized capital was increased in July, 1994 to Rs.5 crores. The company had revalued its only asset, namely, an industrial plot in Okhla Industrial Area, New Delhi by over Rs.3 crores and the company had issued bonus shares against this revaluation reserve at the rate of 60 ordinary shares for every preference shares as well as ordinary shares, which were fully paid. No bonus shares were allotted to the petitioners. In August 1995, the company issued 3065 equity shares to the preference shareholders in discharge of the preference shares held by them, against the provisions of the Act. In February 1996, the company had issued 25,000 partly paid equity shares at Rs 40 per share, to the respondents group in exclusion of the petitioners. By these acts, the petitioners who were majority shareholders, were reduced to a negligible minority. Such conversion of majority nto minority is a grave act of oppression. The 2nd petitioner was appointed as a director in the AGM held in October, 1986 and the first petitioner was co-opted on the Board from 4th May, 1991 and was confirmed in the General Body Meeting held on 1st July, 1991. It is further alleged that petitioners have not been receiving any notice for the Board Meetings as well as General Body Meetings after 1st July, 1991. However, an inspection of the ROC records showed that both these petitioners had ceased to be directors w.e.f. 1st July, 1991 and that in the year 1992, 4th and 5th respondents had been appointed as directors. Later on when the respondents filed their replies, it transpired that the 4132 partly paid shares held in the names of the petitioners had been forfeited and the said shares had been restored in the name of M/S Gupta Bros. At the last stage of hearing, it further transpired that M/S Gupta Bros had further transferred these shares to someone else. During the proceedings a number of applications were filed, the important one being that, the respondents had illegally leased out the only land of the company to their own sister concerns on terms which are prejudicial to the interest of the company and the shareholders. With these allegations, the petitioners have sought for restoring their names in the register of members, cancellation of the allotment of bonus shares as well as the further issue of 25000 shares to the respondents group, cancellation of the lease agreements entered into with the sister concerns of the respondents and restoration of the petitioners as directors.

Citation :
M/s Tinplate Dealers Association Pvt Ltd & others Petitioners: 1. Shri Satish Chandra Sanwalka 2. Shri Rajnish Sanwalka 3. Smt. Shubha Sanwalka 4. Shri Manish Sanwalka 5. Shri Ashish Sanwalka 6. M/S Ish Traders Pvt.Ltd. 7. M/S Sha-Kunt Enterprises Pvt.Ltd. Respondents: 1. M/S Tinplate Dealers Association Pvt.Ltd. 2. Shri Satyasheil Gupta 3. Shri Vikaramsheil Gupta 4. Shri Mahesh Narain 5. Shri Brij Raj Kapoor 6. Mrs. Savtri Gupta & Shashi Kant Gupta (Joint) 7. Shri Satyasheil Gupta & Sh.Vikramshell Gupta (Joint) 8. Shri Shashikant Gupta 9. Mrs. Pushpa Satyasheil & Sh.Vikram Sheil Gupta & Jaipal Gupta Sons Pvt.Ltd. (Joint)