1984 Supreme(Cal) 198

High Court Of Calcutta
Dipak Kumar Sen
GLUCO SERIES PVT.LTD. - Appellant
Versus
STATE OF WEST BENGAL - Respondent
Company Petition 448  Of  1980
Decided On : 06/06/1984

Headnote:

COMPANY - SHAREHOLDERS - MAJORITY - REDUCTION - ISSUE OF SHARES - VALIDITY - OPPRESSION - MISMANAGEMENT - SECTIONS 397 AND 398 OF THE COMPANIES ACT, 1956 - INTERPRETATION AND APPLICATION.

Fact of the Case:

Debendra Nath Bhattacharya and Deb Kanta Roy were the promoters of Gluco Series P. Ltd. (the company). At the incorporation of the company, Debendra subscribed for 1,000 shares and Deb Kanta subscribed for 200 shares of Rs. 100 each. The main object of the company is to manufacture and sell glucose of various types. The articles of association of the company provide that the company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not, except as ordered by a court of competent jurisdiction or as by statute required, be bound to recognise any benami, equitable or other claim to/or interest in such share on the part of any other person. By a special resolution dated October 12, 1965, a new article, being article No. 48a, was incorporated as follows: notwithstanding anything contained in these articles of association or in the regulations contained in Table " A " in Schedule I to the Companies Act, 1956, which may be applicable to the company, so long as any money remains due by the company to West Bengal Financial Corporation, its successor or successors and/or assigns (hereinafter called "the said Corporation") under or by virtue of any deed or deeds of mortgage and/or hypothecation executed by the company in favour of the said Corporation the following provisions shall have effect: (a) No change shall be made in the memorandum and articles of association of the company or in the capital structure of the company save with the previous consent in writing of the said Corporation.

Finding of the Court:

1. The issue of the said 900 shares on October 3, 1980, is illegal and void and not binding on the company and its shareholders. 2. Respondents Nos. 4 to 20 are restrained from exercising any rights whatsoever in respect of or under the said 900 shares. 3. The present board of directors of the company is superseded. 4. The special officer already appointed is directed to call a meeting of the shareholders of the company on the basis of the shareholding as on March 31, 1979, as recorded in the relevant annual return for the constitution of a new board of directors. 5. The special officer will hand over charge of the company to the new board of directors after the same is constituted. 6. The special officer will file a report after handing over charge of the company to the new board.

Issues: 1. Whether the issue of 900 shares on October 3, 1980, was valid and binding on the company and its shareholders. 2. Whether the petitioners had made out a case of mismanagement within the meaning of Sections 398 of the Companies Act, 1956. 3. Whether the petitioners had made out a case of oppression against the petitioners which brings respondents Nos. 2 and 3 within the mischief of Sections 397 thereof.

Ratio Decidendi: 1. It is not open to the directors of a company to issue and allot shares in a manner by which an existing majority of shareholders are reduced to a minority. The court will scrutinise with particular circumspection any such issue or allotment and unless it is satisfied beyond reasonable doubt that such issue was unavoidable and was resorted to as an extreme and emergency measure with an object of fundamental importance, e. g. , saving the existence of the company, will not allow the existing balance of power in the company to be disturbed. 2. The majority shareholders cannot ultimately be kept out of control of the company.

Final Decision: The petition is allowed. The issue of the said 900 shares on October 3, 1980, is declared illegal and void and not binding on the company and its shareholders. Respondents Nos. 4 to 20 are restrained from exercising any rights whatsoever in respect of or under the said 900 shares. The present board of directors of the company is superseded. The special officer already appointed is directed to call a meeting of the shareholders of the company on the basis of the shareholding as on March 31, 1979, as recorded in the relevant annual return for the constitution of a new board of directors. The special officer will hand over charge of the company to the new board of directors after the same is constituted. The special officer will file a report after handing over charge of the company to the new board.