- (1.) The two appeals under Section 10F of the Companies Act, 1956 arise out of the same order passed by the Company Law Board, Principal Bench, disposing of a petition under Sections 397 and 398 of the Companies Act, 1956. The company and those now in management of the company are the appellants in one case; the other appellant is an allottee of shares in the company. The petitioners before the Company Law Board have also carried a cross-objection. The principal question of law that the company and its present management raise is whether a management that is found guilty of converting the majority group of shareholders in a company into a minority by issuing further shares in the company without notice to the majority group is liable to be dislodged in every case. The allottee-appellant rakes up an issue of natural justice and contends that an allotment of shares in a company cannot be questioned in proceedings under Sections 397 and 398 of the Act and the matter disposed of in the absence of the allottee or allottees of such shares. The petitioners before the Company Law Board suggest that the error of law committed in the order under appeal is in the impugned allotments of shares not being cancelled despite the allotments being found to be illegal and otherwise improper.
(2.) The facts are hardly in dispute. The group of shareholders represented by the petitioners before the Company Law Board was, admittedly, the majority shareholders in the company prior to the first of the impugned allotment of shares therein. In fact, the group of shareholders represented by the petitioners before the Company Law Board was the overwhelming majority group in the 3 company prior to April, 2004 when, on or about April 12, 2004, 3,00,000 equity shares of face value of Rs.10 lakh each were transferred by the petitioners the Sarda group to the Agarwal group. It appears to be the fairly undisputed position that at the relevant point of time the principal individuals in the Sarda group stood branded as defaulters since they were on the board of directors of another company which had failed to repay money to the West Bengal Financial Corporation. There is some dispute as to the exact nature of the arrangement between the two groups qua the company, but this much is clear: the Sarda group moved out of the management of the company and the board of directors of the company was packed with nominees of the Agarwal group, but the Sarda group continued to hold shares making up slightly over 70% of the then paid-up capital in the company. At the time of the transition in the management of the company early in 2004, the company s manufacturing facility for production of edible oil was in the process of being set up. In course of time, the company s factory has come up and the company appears to be faring reasonably well.
(3.) The petition was filed before the Company Law Board in the year 2007 with the principal grievance of the Sarda group being that by the issuance of 7,50,000 shares in the company in December, 2005, made without notice to the Sarda group, the Agarwal group had purported to wrest the shareholding control in the company. A further allotment of shares, made on or about February 14, 2006, was also assailed on the ground that an unsecured loan given to the company by a Sarda concern had been converted into shares in the company without notice to or the knowledge of the relevant Sarda concern. In course of the proceedings before the Company Law Board, it came to light that there was a further issue of 10,00,000 shares in the company that the Sarda group may not have previously been aware of and which the Agarwal group had not disclosed in the affidavit filed to the petition under Sections 397 and 398 of the Act. In course of these appeals, the Agarwal group has applied for bringing some additional evidence on record to justify the three tranches of issuance of shares in the company that the Company Law Board found to be illegal. The Agarwal group s plea to introduce 4 additional evidence in appeals limited to questions of law has been declined.;