1. In the instant petition filed under section 397/398 of the Companies Act, 1956 (the ‘Act’), the petitioners have alleged that by allotment of 1340 additional shares by the 2nd respondent to his own group, the petitioners have been converted from a majority into a minority and that he has also appointed respondents 3 and 4 as directors without the knowledge and consent of the petitioners. On the basis of these allegations, the petitioners have sought for cancellation of the allotment of additional shares and also for a declaration that the appointment of respondents 3 and 4 as null and void. When the 2nd respondent had disclosed in his reply that the petitioner-directors had also been removed as directors in an EOGM, the petitioners sought for restoration of their directorship.

2. The facts are : Amethi Hume Pipes Private Limited was incorporated in 1982. The 3rd and 4th petitioners and the 2nd respondent are brothers. The company was promoted by their father. The signatories to the Memorandum was the father, the 2nd respondent, the 1st petitioner being the wife of the 3rd petitioner and the 2nd petitioner being the wife of the 4th petitioner. Before the allotment of the impugned shares, the petitioners’ group collectively held 2,100 equity shares out of 3,600 equity shares that had been subscribed and paid up. The 2nd respondent group held 1,000 shares. The balance 500 shares continued to remain in the name of the late father. The board of directors consisted of the 1st and 2nd petitioners and the 2nd respondent, each of them being a whole-time director drawing remuneration. The allegations in the petition are that with a view to gain majority in the board, the 2nd respondent had allegedly appointed the 3rd respondent being his wife and the 4th respondent being his son as directors on 31-3-2007 and that that 1,340 shares were allotted to the 3rd and 4th respondents with a view to gain majority in the shareholding also.

3. The counsel for the petitioners submitted: By holding 2,100 shares out of 3,600 shares, the petitioners constituted the majority in the shareholding. Right from 1982, there had been no change in the shareholding. The petitioner-directors and the 2nd respondent were carrying on the business of the company smoothly till 2007. The 1st petitioner was in charge of production, the 2nd petitioner in charge of marketing and the 2nd respondent was looking after accounting and finance. However from 2007 onwards, the 2nd respondent began to run the company as if it was his own proprietorship. Cash transactions remained unaccounted for and expenses were inflated. When questioned, he had decided to take complete control of the company. With a view to gain majority on the board, he had purportedly appointed the 3rd and 4th respondents as directors in an allegedly held board meeting on 31-3-2007. Similarly, in the same alleged meeting, he had purportedly allotted 1,030 shares to the 3rd respondent and 310 shares to the 4th respondent. By these allotments, the 2nd respondents’ group came to hold 2,340 shares against 2,100 shares held by the petitioners’ group. In other words, a majority has been converted into a minority. In fact, no board meeting was held on that day and even if it had been held, no notice for this meeting was given to either of the petitioner-directors. Since the petitioner-directors were not present, neither the appointment nor the allotment of shares could have been made with only one director present. In terms of article 25, directors are to be appointed only in a general meeting, that too, on the principle of proportionate representation by the system of single transferable vote. Only in case of a casual vacancy, the said vacancy can be filled up in terms of section 262. There was no casual vacancy in the board to invoke the provisions of section 262 of the Act. At the time when these two persons were allegedly appointed as directors, they did not hold any qualification shares as required in term