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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 589 OF 2010

Tin Plate Dealers Association Pvt. Ltd. & Ors.    ...Appellant (s)

Versus

Satish Chandra Sanwalka & Ors.       ...Respondent (s)

With CIVIL APPEAL NO.599 OF 2010

J U D G M E N T

RANJAN GOGOI, J.

1. Both the  appeals  being  against  the  common judgment

and order of the High Court of Calcutta dated 14th September,

2005 were heard together  and are being  dealt  with by this

common order.  

2.  The appellant in Civil Appeal No. 589 of 2010 is a private

limited  company  incorporated  in  the  year  1948  with  its

registered office at Calcutta.  The appellants 2 to 5 (hereinafter

referred to as the ‘Gupta Group’) had come into control of the

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company  by  actions  and  omissions  complained  of  by

respondents 1 to 7 in the said appeal i.e. C.A. No.589 of 2010

which had led to the institution of the company petition under

Section  397/398  of  the  Companies  Act,  1956  (hereinafter

referred  to  as  the  ‘Act’).   The  said  respondents  may  be

conveniently referred to as the “Sanwalka Group”.  

3. At the time of its incorporation, the authorised capital of

the company was Rs. 10 lakh consisting of 4,000 redeemable

cumulative  preference  shares  of  Rs.  100/-  each  and  6,000

ordinary shares of Rs. 100/- each.  The paid-up capital of the

company before the issue of new, ordinary and bonus shares,

which is the bone of contention between the parties, consisted

of  4132  partly  paid  ordinary  shares  and  1868  fully  paid

ordinary  shares  besides  3065  fully  paid  preference  shares.

One M/s. Gupta Brothers originally held the 4132 partly paid

shares.  The said shares were forfeited sometime in the year

1966 and thereafter  the same were issued to the Sanwalka

Group who paid a total of Rs.45 for each share consisting of

payment at the time of application and allotment and Rs.10/-

per  share  on  a  call  being  made  subsequently.  Whereas,

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according  to  Gupta  Group,  these  shares  were  held  by  the

Sanwalka Group on behalf of Gupta Brothers, the said fact is

denied by  the  Sanwalka  Group.  According  to  the  Sanwalka

Group, the Gupta Group without notice to them had increased

the authorized capital of the company to Rs. 5 crores in an

Extra  Ordinary  General  Meeting  of  the  Company  held  on

5.7.1994.   No  notice  of  the  said  meeting  was  given  to  the

Sanwalka Goup.  A Board Meeting was held on the same day

i.e. 5.7.1994 to give effect to the above decision taken in the

E.O.G.M. to increase the share capital of the company. In the

said Board meeting, a follow up decision was taken to allot

bonus shares at the ratio of 60 bonus shares for every fully

paid  up  preference  and  equity  share  held.  The  said  bonus

shares were to be issued against revaluation of the industrial

plot in Okhla Industrial Area, New Delhi which was the only

asset of the company at that time. This was not contemplated

by the Articles of Association of the Company, according to the

Sanwalka Group. In any case, no bonus shares were allotted

to  them.  Further  more,  according  to  the  Sanwalka  Group,

pursuant to the decision taken on 5.7.1994, in August, 1995

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the company issued 3065 equity shares to the holders of the

preference shares (Gupta Group). In February, 1996, 25,000

ordinary equity shares were again issued to the members of

the Gupta Group against which Rs.40 per share was paid. The

said  issue was ostensibly  to  raise  additional  capital  for  the

company. This allotment was, however, to the exclusion of the

Sanwalka Group. Contending that the aforesaid acts had the

effect of reducing the Sanwalka Group, which was otherwise in

the  majority,  to  a  negligible  minority  in  the  company,  the

company  petition  alleging  oppression  was  filed  before  the

Company  Law  Board  wherein  the  act  of  removing  two

members of the Sanwalka Group from the Board of Directors

(w.e.f.1.7.1991) and inducting two others of the Gupta Group

in their place was also called into question.  

4. From the reply filed by the Gupta Group to the company

petition it transpired that the 4132 partly paid shares held by

the Sanwalka Group stood forfeited. The aforesaid forfeiture

was therefore challenged in the company petition with a claim

that  the  said  shares  be  restored  to  the  members  of  the

Sanwalka  group.  During  the  subsistence  of  the  company

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petition,  supplementary  applications  were  also  filed

challenging the action of the Gupta Group in leasing out the

industrial  plot  to  sister  concerns  on  terms  claimed  to  be

prejudicial  to  the  interest  of  the  company  and  of  the

shareholders.  

5.  The eventual reliefs prayed for in the Company Petition

in the light of the averments made in the said petition and the

supplementary applications were for:  

(1) restoration of the names of the members of the Sanwalka Group in the register of members of the company;  

(2) cancellation of the allotment of bonus shares;  

(3) cancellation  of  the  issue  and  allotment  of 25000 partly paid up ordinary equity shares to the Gupta Group;  

(4) cancellation  of  3065  equity  shares  to  the holders of the 3065 preference shares;  

(5) cancellation of the lease agreement in respect of the industrial plot and  

(6) restoration  of  the  names  of  the  concerned members of the Sanwalka Group as Directors of the Company.   

6. The Company Petition was opposed by Gupta Group as

not maintainable in law. According to the Gupta Group, the

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shares  held  by  the  members  of  the  Sanwalka  Group stood

forfeited and the holders thereof had ceased to be members of

the company.  Such forfeiture, according to the Gupta Group,

was in the following circumstances.  

The said shares were  held  by  the  Sanwalka  Group as

beneficiaries on behalf of the original holders i.e. M/s. Gupta

Brothers.  As  the  shares  held  by  the  Gupta  Brothers  were

partly paid, the Sanwalka Group as beneficiary holders, was

liable to pay the unpaid value of the said shares along with

interest therein on a call being made by the company. Such a

call, according to the Gupta Group, was made on 05.01.1991

which went unanswered. Consequently, the aforesaid shares

were forfeited. There was an alternative contention advanced

by Gupta Group to the effect that in any event the Sanwalka

Group were holders of partly paid shares and they having not

responded  to  the  call notice  dated  5.1.1991,  the  company

petition was not maintainable under Section 399 of the Act.    

7. The claim of the Sanwalka Group that the issue of bonus

shares was not authorized as the same could not have been

issued again the revaluation reserve was resisted by the Gupta

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Group by specific reference to the relevant provisions of the

Companies Act, details of which will be noticed later. It was

claimed  that  in  the  Board  Meeting  dated  5.7.1994

proportionate  allotment  of  bonus  shares  against  the  4132

partly  paid  shares  in  which  the  Sanwalka  Group  held  a

beneficial interest was offered subject to payment of the dues

against  the  said  shares  in  term  of  the  call  notice  dated

5.1.1991. Insofar as the issue of  25,000 ordinary shares is

concerned, it was contended by the Gupta Group that the said

shares  were  issued  to  infuse  badly  needed  capital  into  the

company. In view of the clear and expressed disinterest of the

Sanwalka Group in the affairs of the company evidenced by

their  long  silence  and  failure  to  respond  to  the  call  notice

dated 5.1.1991 and also to participate in the Board meetings,

it was understood by the Gupta Group that they would not be

interested in allotment of any part of the newly issued share

capital i.e. 25,000 shares. In any case, according to the Gupta

Group, as the members of the Sanwalka Group had ceased to

be members of  the company (1995) by the time the 25,000

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shares  were  issued/allotted  (February,  1996)  they  were  not

entitled to allotment of any of the said newly issued shares.  

8. Insofar as the lease in respect of  the industrial  plot is

concerned, it  was urged on behalf  of  Gupta Group that the

same was done in consideration of the funds made available

by the lessees to raise construction on the land which was

necessary  to  pre-empt  an  imminent  forfeiture  of  the  lease

itself. The actions of the company, therefore, were claimed to

be in the interest of the company.   

9. The  Company  Law Board  (CLB)  by  an  elaborate  order

dated 1.3.2001 overruled the objections raised by the Gupta

Group  to  the  maintainability  of  the  petition.  The  CLB

concluded  that  the  shares  held  by  the  members  of  the

Sanwalka Group were in their own right, independent of any

right of M/s. Gupta Brothers all of which stood extinguished

upon forfeiture of the shares held by the said Gupta Brothers.

The CLB further held that under Article 18 of the Articles of

Association of the Company, it is M/s. Gupta Brothers who

were liable to pay the dues, if any, on the said forfeited shares.

The  Board  also  found  that  the  members  of  the  Sanwalka

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Group had paid Rs.45 per share and though there were an

obligation  to  pay  the  balance  on  a  call  being  made  the

materials on record did not disclose that any such call was

made at  any point  of  time.  In  this  regard the  notice  dated

5.1.1991 was held by the CLB not to be duly proved to have

been issued following the procedure under Section 53 of the

Act. It was also held that the said notice dated 5.1.1991 did

not contemplate forfeiture of the shares in the event of failure

to  pay  the  call  money  as  required  under  Clause  14  of  the

Articles of  Association of the Company. On the basis of  the

said findings the twin objections raised by the Gupta Group to

the maintainability of the company petition was held against

them.  

10. The CLB by its order dated 01.03.2001 further held that

the  issue  of  bonus  shares  against  revaluation  reserve  was

contrary to the provisions of Article 96 of Table A of the Act of

1956. So far as the issue of 25,000 ordinary equity shares is

concerned, the CLB decided the issue in favour of the Gupta

Group.  However,  as  the  members  of  the  Sanwalka  Group

continued to be members of  the company, it  was held that

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proportionate allotment of the said equity shares should have

been  made  to  them  also.  The  removal  of  the  two

representatives of  the Sanwalka Group from the Board was

also  held  to  be  bad  on  the  aforesaid  count.  Of  particular

significance would be the finding of the Board that notice of

the EOGM held on 5.7.1994 in which decision was taken to

raise the share capital of  the company was, admittedly, not

given  to  the  Sanwalka  Group  though  they  were  entitled  to

such  notice.  Insofar  as  correctness  of  the  issue  of  3065

ordinary  equity  shares  against  the  preference  shares  is

concerned,  the  Company  Law  Board  felt  that  it  would  be

inappropriate to go into the said question as a related issue

was pending before the Delhi High Court with regard to the

very same preference shares. In fact, the issue before the High

Court involved the question as to whether the said shares did

exist  at  all  or  stood  extinguished  prior  to  the  date  of

conversion.  Insofar  as  the  lease  of  the  industrial  plot  is

concerned, the CLB felt that the same should be left open for

an appropriate  decision  of  the  company in  a  General  Body

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Meeting to be held on the basis of the revised share holding as

ordered by the CLB.               

11. Aggrieved by the aforesaid order of the CLB with regard

to the maintainability of the company petition, issue of bonus

shares  and  25,000  ordinary  equity  shares  and  also  the

re-induction of  the members of  the Sanwalka Group in the

Board of Directors, the Gupta Group moved the Calcutta High

Court  by  filing  an  appeal  under  Section  10F  of  the  Act.

Challenging the decision of the Board insofar as the issue of

3065  preference  shares  and  the  lease  in  respect  of  the

industrial plot is concerned, the Sanwalka Group had filed a

separate appeal. The High Court, by its impugned order dated

14.9.2005,  dismissed  both  sets  of  appeal  leading  to  the

institution of the present appeals before this Court.     

12. On the basis of the issues dealt with by the CLB and the

High  Court  and  the  arguments  advanced  on  behalf  of  the

parties  the  issues  arising  in  the  two  appeals  may  be

summarised as follows:

(i) Maintainability  of  the  company  petition  filed  by  the

Sanwalka Group before the Company Law Board.

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(ii) Legality of the issue of bonus shares by the company;

(iii) Legality of the issue of 25,000 new ordinary shares ;

(iv) Legality  of  the  removal  of  the  representatives  of  the

Sanwalka  Group  from the  Board  of  Directors  and  the

induction of the members of Gupta Group in their place;  

(v) Legality of the lease agreement executed by the company

in respect of the industrial plot;

(vi) Legality of  the issue of 3065 ordinary equity shares as

against the preference shares.   

13. We  have  heard  Shri  Arvind  P.  Datar  learned  senior

counsel  appearing  for  the  Gupta  Group  and  Shri  C.A.

Sundaram learned senior counsel appearing for the Sanwalka

Group.  

14. The  questions  arising,  as  noticed  above,  may  now  be

taken up for consideration.

Maintainability of the Company Petition –  

Notwithstanding  the  very  elaborate  and  persuasive

arguments  made  by  both  sides  a  resolution  of  the  above

question is possible by a close look of the share certificates

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issued to the members of the Sanwalka Group after allotment

of the shares in question following the forfeiture of the same in

the  hands  of  M/s.  Gupta  Brothers.  Some  of  the  share

certificates  in  question  are  on  record.  A  reading  thereof

discloses that  the same constitute  a fresh and independent

allotment  of  the  shares  by  reference  to  their  distinctive

numbers specified therein.  The certificates do not contain any

stipulation or condition that the same are being held either on

account of a third person or as beneficiaries on behalf of any

third person. The shares in question were allotted on payment

of  Rs.35 being the application money (Rs.25)  and allotment

money (Rs.10).  A further amount of Rs.10/- per share was

paid against the first  call  made on 7.8.1986. Therefore,  the

share  certificates,  ex  facie, do  not  support  any  of  the

contentions  advanced  on  behalf  of  Gupta  Group,  details  of

which have been noticed hereinabove. If the shares were held

by the  members of  the  Sanwalka  Group in their  own right

without any connection to the erstwhile/forfeited shares held

by  M/s.  Gupta  Brothers,  the  second  question  arising  i.e.

failure to respond to the call notice dated 5.1.1991 really does

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not  arise.  Be  that  as  it  may,  the  said  notice  required  the

members of the Sanwalka Group to pay the unpaid value of

the forfeited shares (which coincidentally was also Rs.55/- per

share i.e. same as the unpaid amount of the shares at the time

of  forfeiture when held by M/s.  Gupta Brothers)  along with

interest. In this regard it was found by the CLB as well as the

High Court that even issue of notice of the call in terms of

Section  53  of  the  Act  had  not  been  proved  by  the  Gupta

Group.  That  apart,  the  call  notice  dated  5.1.1991  and

forfeiture of the shares held by the Sanwalka  Group, upon

alleged failure to comply with the said notice, does not appear

to  be inconformity  with Clauses 14 to  18 of  the Articles  of

Association of the Company, which are extracted below:–

“14. If any member fails to pay any call or instalment on or before the day appointed for the payment of the same the Directors may at any time thereafter during such time as the call or instalment or any part thereof remains unpaid serve a notice  on  such  member  requiring  him  to  pay  the  same together  with any interest  that  may have accrued and all expenses that the company may have incurred.  They may also write in any such notice that in the event of failure to pay the amount so due before a particular date the Directors shall proceed to forfeit the shares.”          (emphasis is ours)

15.  If  the amount still  remains unpaid the Directors may proceed to forfeit the shares.

16. A notice of the resolution of forfeiture shall be given to the member whose shares have been forfeited.

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17.  Any  shares  so  forfeited  shall  be  deemed  to  held  the property of the company and the Directors may sell, reallot annul the forfeiture or otherwise dispose of the same in such a manner as they may think fit.

18.  Any  member  whose  shares  have  been  forfeited  shall notwithstanding such forfeiture be liable to pay, and shall forthwith pay to the company all calls instalments, interest and expenses owing upon or in respect of such shares at the time  of  forfeiture/together  with  interest  thereon,  from the time of forfeiture until payment at nine per cent per annum and the Director may enforce the payment of such moneys or any part thereof if they think fit, but shall not be under any obligation to do so.  The member whose shares have been forfeited shall not be entitled to claim the sale proceeds of such shares.”

15. Not  only  the  call  notice  dated  5.1.1991  had  not  been

proved  to  have  been  issued  in  the  matter  required  under

Section 53 of the Act, the notice also does not mention the

consequences  of  non-payment  i.e.  forfeiture.   Also  the

fastening of  the liability  on the Sanwalka Group to pay the

unpaid amount of the forfeited shares along with interest is

plainly contrary to the provisions of Article 18 of the Articles of

Association, extracted above. Besides, the date of the forfeiture

also is not clear though it appears that in a Board Meeting

held  on  2.8.1995  a  decision  was  taken  to  restore  the  said

shares  to  M/s.  Gupta  Brothers.  The  reason  for  the  said

decision appears to be to comply with an order of attachment

of the shares passed earlier by the Civil Court. All these would

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demonstrate the apparent falsity of the claim now made that

the  forfeiture  was  due to  failure  of  the  Sanwalka  Group to

comply with the terms of the call notice dated 5.1.1991.  

16. To overcome the aforesaid difficulties, an argument has

been made  on  behalf  of  Gupta  Group  that  even if  the  call

notice dated 5.1.1991 is not to be relied upon, in the Balance

Sheet dated 31.3.1992 the amounts due have been shown as

calls-in-arrears. The said document was duly circulated. The

Sanwalka  Group,  therefore,  had full  knowledge that  unpaid

call money is due.   

17. Besides the fact that there is no co-relation between the

amounts mentioned in the call notice dated 5.1.1991 and the

Balance Sheet dated 31.3.1992, the members of the Sanwalka

Group were removed from the Board of Directors on 1.7.1991

i.e.  before  the  finalisation  of  the  Balance  Sheet  dated

31.3.1992. In any case, the procedure for forfeiture of shares

as  a consequence of  failure  to  respond to  a  call  notice  are

unambiguously set out in details in the Articles of Association

of  the Company, extracted above.  A balance sheet does not

and cannot operate as an alternative to a call notice.  

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18. If  the  primary  question  i.e.  maintainability  of  the

company  petition  has  to  be  answered  in  favour  of  the

Sanwalka  Group,  as  we  are  inclined  to,  the  other  issues

highlighted in the earlier part of this order would now have to

be considered.

Issue of 25,000 ordinary equity shares  -     

19. There is no denial of the fact that notice of the E.O.G.M.

dated 5.7.1994 was not given to the members of the Sanwalka

Group though they, admittedly, continued to be members of

the company on the date of the meeting. It is pursuant to the

decision taken in the said E.O.G.M. dated 5.7.1994 to raise

the  share  capital  of  the  company  from Rs.10  lakh  to  Rs.5

crores that the other decisions with regard to bonus shares;

the issue of 25,000 ordinary equity shares and the conversion

of preference shares to equity shares were made subsequently.

Such  notice  is  mandatory  under  Section  172(2)  read  with

Section  41  of  the  Act.  This  is,  ex  facie, apparent  from the

reading of  the said provisions of  the Act.   Reference to the

elaborate case laid before us on this score would, therefore,

not be required.

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20. Specifically,  so  far  as  the  issue  of  bonus  shares  is

concerned, the arguments laid down before us would require a

consideration whether Section 205(3) of the Act, particularly,

the  proviso  thereto  permits  issue  of  bonus  shares  out  of

revaluation reserves of a company.  The further question that

would arise is the correct interplay between the provisions of

the Act and those contained in the Articles of Association of a

Company.  So  far  as  the  issue  with  regard  to  utilization  of

reserves arising from revaluation of assets for the purpose of

issuing fully paid bonus shares is concerned, the same has

been  held  to  be  permissible  in  Bhagwati  Developers  Vs.

Peerless  General  Finance  &  Investment  Co.  &  Ors.  1.

However, it has to be noticed that in  Bhagwati Developers

(supra) the  Articles  of  Association  (Article  182)  specifically

permitted/contemplated  such  a  course  of  action.   In  the

present case, the Articles of  Association of the Company do

not empower the Directors to so act.  No such situation i.e.

issue  of  bonus  shares  out  of  revaluation  reserve  is

contemplated.   When  the  Articles  of  the  Company  do  not

confer any such power in the Board exercise thereof on the

1 (2005) 6 SCC 718

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basis  that  the  Act  so  provides  would  be  impermissible.

Enabling provisions under the Act would require incorporation

in the Articles of a company. To the above effect the view of

this Court in Para 25 of the Claude-Lila Parulekar (Smt.) Vs.

Sakal Papers (P) Ltd. & Ors.  2 is relevant –

“25. Section 36 of the Companies Act, 1956 makes the memorandum  and  articles  of  the  company,  when registered, binding not only on the company but also the members inter se to the same extent as if they had been signed  by  the  company  and  by  each  member  and covenanted to by the company and each shareholder to observe all the provisions of the memorandum and of the articles. The articles of association constitute a contract not  merely between the shareholders  and the company but between the individual shareholders also. The articles are a source of power of the Directors who can as a result exercise  only  those  powers  conferred by the articles  in accordance therewith. Any action referable to the articles and contrary thereto would be ultra vires.”

21. That apart, the resolution of the Board dated 5.7.1994

pursuant to which bonus shares were issued indicates that

the real purpose for issue of the bonus shares is to raise funds

which were badly needed by the company at that point of time.

On the very face of it, the purpose indicated in the resolution

is  a  sham and  a  pretence  inasmuch  as  revaluation  of  the

existing assets of the company and issuance of bonus shares

against such revaluation could not and did not generate any

2 (2005) 11 SCC 73

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additional funds as the additional capital available is purely

fictional  or  notional.   A  self  serving  interest  of  the  Gupta

Group (who received all the bonus shares issued) in issuing

the bonus shares, therefore, is evident.

22. So far as the issue of 25,000 equity shares is concerned,

there  can  be  no  manner  of  doubt  that  the  decision  of  the

Board to issue the said shares has to be tested in the light of

the wide powers of the Board to act in such matters as has

been laid down by this Court in  Needle Industries (India)

Ltd. & Ors. Vs. Needle Industries Newey (India) Holding

Ltd.  & Ors.  3.   The power  of  the  Board of  Directors  of  the

Company to issue fresh shares must always be viewed as an

adjunct of its extensive powers under the Act and the bona

fides of  such an exercise cannot  be called into question by

construing the power to issue fresh shares to be limited by any

particular  purpose  or  purposes.   This  was  the  view  of  the

Company  Law  Board  also.   However,  the  same  would  not

detract from the fundamental principle of fair play that is to be

expected from the  Board of  Directors  in  making a  fair  and

proportionate  distribution/allotment  of  such  fresh  shares.

3 (1981) 3 SCC 333

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The direction of the Company Law Board upheld by the High

Court, namely, that allotment from the aforesaid 25,000 newly

issued ordinary equity shares should be proportionate to the

share holding of  the two groups taking the members of  the

Sanwalka Group as having continued to be members of the

company, will, therefore, not require any interference.   

23. Insofar the issue of 3065 ordinary equity shares in lieu of

3065 preference shares is concerned, the CLB and the High

Court  had  thought  it  proper  to  leave  the  matter  for  a  just

determination by the Delhi High Court in view of the suit filed

by the Sanwalka Group contending that the said shares had

ceased to exist in the year 1967 and therefore no equity shares

could have been issued in lieu of the said preference shares as

has been done.  The suit in question which is of the year 1996

may  take  some  further  time  for  resolution.   In  such

circumstances,  the  apprehension  of  the  Sanwalka  group  is

that  if  the equity  shares issued against  the said preference

shares are allowed to remain alive and valid the balance would

still tilt in favour of the Gupta Group.

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24.  It  is  not  known  whether  the  High  Court  had  been

requested by the parties to make an interim arrangement and

if so the result thereof. However, before us, the Gupta Group

has  sought  to  contend  that  the  above  apprehension  of  the

Sanwalka  Group  is  unfounded.  It  is  claimed  that  it  is  not

correct that by virtue of the conversion of the 3065 preference

shares into equity shares the Gupta Group has emerged in the

majority for the first time. Even prior to such conversion, the

Gupta Group was in a majority inasmuch as the preference

shares always carried a right to vote. Therefore, even on the

basis of the original share holding, the Gupta Group was in

majority.   

25. We  cannot  countenance  the  aforesaid  submission

advanced  on  behalf  of  the  Gupta  Group  in  view  of  the

provisions of Section 87 of the Act particularly sub-section (2)

thereof which is in the following terms:

“(2) (a) Subject as aforesaid and save as provided in clause  (b)  of  this  sub-section,  every  member  of  a company  limited  by  shares  and  holding  any preference share capital  therein shall,  in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares.

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Explanation. :  Any resolution for winding up the company  or  for  the  repayment  or  reduction  of  its share capital  shall  be deemed directly to affect the rights  attached  to  preference  shares  within  the meaning of this clause.

(b)  Subject  as  aforesaid,  every  member  of  a company  limited  by  shares  and  holding  any preference share capital  therein shall,  in respect of such capital, be entitled to vote on every resolution placed  before  the  company  at  any  meeting,  if  the dividend  due  on  such  capital  or  any  part  of  such dividend has remained unpaid :

(i)  in the case of cumulative preference shares, in respect of an aggregate period of not less than two years  preceding  the  date  of  commencement  of  the meeting ; and

(ii) in the case of non-cumulative preference shares, either in respect of a period of not less than two years ending  with  the  expiry  of  the  financial  year immediately  preceding  the  commencement  of  the meeting or in respect of an aggregate period of not less  than  three  years  comprised  in  the  six  years ending with the expiry of the financial year aforesaid.

Explanation.  : For  the  purposes  of  this  clause, dividend  shall  be  deemed to  be  due  on preference shares in respect of any period, whether a dividend has been declared by the company on such shares for such period or not,

(a) on the last day specified for the payment of such dividend  for  such  period,  in  the  articles  or  other instrument executed by the company in that behalf ; or

(b)  in  case  no  day  is  so  specified,  on  the  day immediately following such period.

(c) where the holder of any preference share has a right to vote on any resolution in accordance with the provisions of this sub-section, his voting right on a

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poll, as the holder of such share, shall, subject to the provisions of section 89 and sub-section (2) of section 92, be in the same proportion as the capital paid up in respect of the preference share bears to the total paid-up equity capital of the company.”

26. A reading of  the aforesaid Section 87 (2) would clearly

indicate  that  except  in  situations where dividends have  not

been paid, holders of preference shares do not have a right to

vote  except  in  matters  which  directly  affects  the  rights

attached to the preference shares.  

27. Reliance has been placed on Articles 20, 21 and 22 of the

Articles of Association of the Company to claim voting rights

against the preference shares held by the Gupta Group.  It will

therefore be necessary to take note of the said Articles which

are in the following terms:

“20. The following rights are attached to these shares as regards dividends, voting rights and redemption –

(a) Preference shares shall carry a fixed cumulative free of Income-tax dividend @ of 6% per annum in preference to ordinary or any other class of shares.

(b) Preference  shares  shall  be  redeemable  at  any time after a period of 5 or 10 years from the date of  allotment  at  the  option  of  Directors  of  the company or at the option of the holder thereof respectively,  provided a notice of three months in writing is given by the company to the holders thereof or vice-versa as the case may be.

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(c) After payment cumulative dividend of 6% free of tax on preference shares, the balance of the net divisible profits (as may be recommended by the directors)  shall  be  utilized  for  payment  of dividend @ 9% on ordinary shares.

(d) Any net divisible profits as may be recommended by  the  Directors  remaining  after  payment  of cumulative  dividend  or  preference  shares  and dividend on ordinary shares as mentioned above shall  be  divided  between  the  preference  and ordinary shares equally on the basis of paid up capital in the company.  

(e) Preference  shares  shall  also  have a  preference for  repayment  of  capital  at  the  time  of  the winding up of the company in preference to any class of shares.

21. On show of  hand  every  shareholders  present  in shall  have one vote and upon poll  every shareholder present in person or any proxy shall have one vote for each  share  held  by  him  or  her.  A  poll  may  be demanded in accordance with law.

22. A holder of any shares shall not be entitled to a vote either by show of hand or at poll unless there have been paid to the company all sums of money then due from that holder in respect of these shares.”    

28. The  aforesaid  Articles  must  necessarily  have  to  be

understood  in  the  light  of  the  provisions  of  Section  87

particularly those contained in sub-Section (2).  The meaning

sought to be given to Articles 20, 21 and 22, extracted above,

namely,  that  every  share  holder  including  the  holder  of  a

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preference  share  has  a  right  to  vote  cannot  be  readily

accepted. The resolution of the Board dated 5.7.1994 relating

to  the  conversion  of  preference  shares  into  equity  shares

proceeds on the basis that dividends in respect of the 3065

shares have not been paid and in lieu thereof the shareholders

had agreed to receive an equivalent number of equity shares.

The above statement of fact is difficult to accept. Neither is the

period during which dividends had not been paid is specified,

nor is the amount due indicated. No material has been laid to

show that the 3065 equity shares represent a fair value of the

dividends claimed to be unpaid. What cannot also be lost sight

of is that the preference shares in question were held by the

Gupta Group who was in control of the company at that point

of time. A number of self serving decisions by the Gupta Group

and its conduct of the business of the company in a manner

detrimental  to  the  interest  of  the  company,  as  discussed

hereinabove, would make it extremely perilous to rely on the

version available in the resolution of the Board for allotment of

3065  equity  shares  in  place  of  the  preference  shares  in

question.   In the above circumstances it  would be just and

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proper to strike down the conversion of the 3065 preference

shares into equity shares and revert the preference shares to

its earlier status to be dealt with in the future in accordance

with law. This is, of course, subject to the orders of the Delhi

High Court in the appeal pending before it.

Lease of the Industrial Plot

29. If the forums below have left the above matter for a just

determination  in an Extra  Ordinary  General  Meeting  of  the

Company,  in  view of  the  directions  hereinabove,  we do  not

consider it necessary to deal with the said aspect of the case

any further.   

30. Before parting, certain subsidiary issues raised on behalf

of  the  parties  may  be  briefly  noticed  if  only  to  make  the

discussion complete.    

The  failure  of  the  High  Court  to  frame  a  substantial

question  of  law  to  hear  the  appeal  before  it  can  hardly

invalidate the order passed.  The order of the High Court is an

order of affirmation; further there is no provision in Section

10F of the Act which is akin to the provisions contained in

Section 100 (4) of the Code of Civil Procedure, 1908.

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31. The argument that having regard to the conduct of the

Gupta Group in managing the affairs of the Company and all

decisions taken being in the best interest of the Company, no

case for winding up is made out so as to justify the exercise of

powers under Section 397/398 of the Act by the CLB, would

hardly require a detailed consideration in view of the specific

findings of  the High Court in this regard,  which are wholly

adverse  to  the  Gupta  Group.  The  said  view  and  the

conclusions reached have our approval, as already indicated.

Besides,  the  High  Court  in  the  order  under  challenge  has

taken  into  account  that  apart  from  the  industrial  plot  in

question the Company has no subsisting business and that

the  terms of  the  lease entered into  by the Gupta Group in

respect  of  the  said  property  are  wholly  adverse  to  the

Company’s interest.  

32. The question whether a single act of  oppression would

enable  the  CLB  to  intervene  or  oppression  must  be  the

cumulative result of continuous acts should not require any

debate in the facts of the present case which demonstrate a

series of unacceptable decisions and actions on the part of the

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Gupta Group. In the last resort, satisfaction that oppression

has been committed has to be reached in the facts of  each

case.  

33. In  view  of  the  above  discussions  and  for  the  reasons

alluded, Civil Appeal No.589 of 2010 filed by the Gupta Group

is dismissed whereas Civil Appeal No.599 of 2010 filed by the

Sanwalka Group is disposed of with directions, as contained in

the present order.  

….……......................,J.                                                         [RANJAN GOGOI]

….……......................,J.                                                              [PRAFULLA C. PANT]

NEW DELHI; OCTOBER 07, 2016.