Court :
SUPREME COURT
Brief :
COMPANIES ACT, 1956:
ss. 397 and 398 - Allegations of oppression and mismanagement, illegal
allotment of equity shares resulting in conversion of majority shareholding
into minority shareholding, appointment of Additional Director and removal
of two Directors - Company Law Board holding allotment of 5564 shares out
of 9507 shares as illegal and giving benefit of doubt as regards allotment
of 3943 shares as it was within the knowledge of petitioners, and holding
appointment of Additional Director and removal of two Directors illegal and
in favour of petitioners - Appeal by petitioners as regards allotment of
3943 shares - HELD: There being some factual controversies as regards
petitioners ratifying the Balance Sheet and their representing before
authorities including sales tax and income tax authorities, which clearly
rule out the possibility of petitioners being unaware of the situation -
Considering the nature of controversy it is not a fit case where any
interference under Article 136 of the Constitution is called for -
Constitution of India, 1950 - Article 136.
Respondent no. 1-Company was incorporated as a private limited company in
which shareholdings of the group led by appellant no. 1 was 50.9% and that
of the group led by respondent no. 2 was 49.1%. The company purchased a
sick unit from UPFC in the year 1985 alongwith its land admeasuring 7215
sq. yards in the Industrial Area of the city. Later the unit was closed.
Thereafter disputes arose between the parties and the matter was referred
for arbitration. Awards were given, but no steps were taken to make the
awards rule of the court. On 20.8.1998 the respondent no. 2 group filed
return before the Registrar of Companies showing about the allotment of
9507 equity shares of Rs.100/- each to have been made in their favour in
the years 1994 and 1995. With the said allotment of shares shareholding of
the appellant group came down to 13.4% and that of the respondent group
rose to 86.6%. The appellant group filed a petition u/ss 397 and 398 of the
Companies Act, 1956 before the Company Law Board alleging oppression and
mismanagement on the part of respondent group for illegal allotment of 9507
equity shares, appointment of an Additional Director w.e.f. 20.10.1994 at
the instance of respondent group and removal of two Directors of the
appellant group from 16.9.1998. The Company Law Board held that the
allotment of 5564 shares out of 9507 equity shares, was illegal and set
aside the same. As regards the remaining 3943 shares, benefit of doubt was
given to respondent group on the ground that this allotment was within the
knowledge of the appellant group. The Board further declared appointment of
Additional Director and removal of two Directors as illegal. Both the
parties filed appeals, which were dismissed by the High Court.
In the instant appeal, it was contended for the appellants that allotment
of shares could only be done by the Board of Directors and there was no
presumption in law of allotment of shares merely because of receipt of
share application money; that by allotment of 3943 shares the appellants'
majority shareholding from 50.9% was reduced to 23.5% and as such, the
converting of majority shares to minority shares was a continuous
oppression.
Citation :
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