Section 399, read with sections 397 and 398

Court :
COMPANY LAW BOARD, ADDITIONal PRINCIPAL BENCH, CHENNAI

Brief :
Section 399, read with sections 397 and 398, of the Companies Act, 1956 - Oppression and mismanagement - Whether when shareholding of a petitioner is reduced below 10 per cent due to further allotment of shares and such allotment itself is impugned in petition under section 397 or section 398, petition would be maintainable under section 399 on strength of his holding before further allotment of shares - Held, yes Section 111A of the Companies Act, 1956 - Transfer of shares - Rectification of register on - Whether two month period prescribed under section 111A(3), applies to transfer of shares effected in normal course of transactions but not in respect of transactions, in which shareholder has been deprived of his shares without free consent, by way of coercion or duress or force - Held, yes Facts The petitioner-shareholder filed a company petition under section 397/398 alleging certain acts of oppression and mismanagement in the affairs of the respondent-company. The petitioner submitted that originally it held 49.30 per cent of the issued capital of the company, but pursuant to the transfer of 33,126 shares to the third respondent in August, 2002, without consideration and by way of duress and coercion, the same was reduced to 18.29 per cent. In the petition, the petitioner prayed for declaration that the transfer of 33,126 shares was illegal, void and for restoration of the same to the petitioner. The respondents filed application challenging the very maintainability of the petition filed by the petitioner. It was submitted that pursuant to the notice dated 15-10-2003 sent to all of its members, the company, at its extraordinary general meeting held on 25-11-2003, resolved to allot certain equity shares to respondents; that consequent upon the impugned transfer and allotment of shares, the petitioner’s shareholding accounted for 5.34 per cent of the issued capital of the company and the petitioner did not have the required shareholding of 10 per cent as prescribed under section 399. The petitioner, in reply, stated that subsequent to the filing of the company petition, he came to know of the further issue of shares allegedly made at the extraordinary general meeting held on 25-11-2003. The petitioner alleged that the said allotment was in violation of section 81(1A) inasmuch as the company did not offer further shares to the petitioner being an existing shareholder in proportion to his holding; that the allotment was mala fide and was done with the object of bringing down the shareholding of the petitioner from 18.29 per cent to less than 10 per cent; and further that the petitioner was not served with any notice for the extraordinary general meeting approving the issue of further shares. The petitioner, thus, submitted that in exclusion of the further allotment of shares on 25-11-2003, the petitioner’s shareholding, as on the date of the filing of the company petition, amounted to 18.29 per cent of the issued and paid-up capital of the company which entitled him to invoke provisions of sections 397 and 398. The petitioner also submitted that his company petition ought not to be rejected at the threshold as the same would cause serious prejudice to him.

Citation :
Woodbriar Estate Ltd. v. V.N.A.S. Chandran