Void share allotment and estoppel cannot cure a capital issue made without prior governmental consent.

A share allotment made without prior Central Government consent under the Capital Issues (Control) Act, 1947 was held void ab initio because the statutory prohibition covered the creation and issue of capital as well as allotment. The court treated the 22 March 1974 resolution as an operative allotment proposal, with later resolutions only as follow-up acts that could not validate the initial illegality. Estoppel could not sustain a transaction that was void from the outset, and later participation in corporate acts did not cure the breach. The rectification order was therefore upheld.

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Issues: (i) Whether the allotment of shares made pursuant to the resolution dated 22 March 1974 violated the Capital Issues (Control) Act, 1947 and was void ab initio; (ii) whether the appellant was estopped from challenging the allotment.

Issue (i): Whether the allotment of shares made pursuant to the resolution dated 22 March 1974 violated the Capital Issues (Control) Act, 1947 and was void ab initio.

Analysis: The statutory scheme prohibited a company, without prior consent of the Central Government, from making an issue of capital. The expressions used in the Act covered not merely allotment but also the creation and issue of securities. The distinction between creation, issue and allotment showed that shares came into existence only through lawful allotment, and a transaction undertaken without the required prior consent could not be validated by describing it as conditional or by treating later steps as independent. On the facts, the resolution of 22 March 1974 was an operative allotment proposal, and the later resolutions were only follow-up acts.

Conclusion: The allotment violated the Capital Issues (Control) Act, 1947 and was void ab initio, in favour of the respondent.

Issue (ii): Whether the appellant was estopped from challenging the allotment.

Analysis: Estoppel cannot operate to sustain a transaction that is void ab initio. Once the allotment itself was contrary to the statutory prohibition, there could be no legal basis for treating the parties as members on that footing, and the appellant's participation in later corporate acts did not cure the initial illegality.

Conclusion: The appellant was not estopped from challenging the allotment, in favour of the respondent.

Final Conclusion: The rectification order was upheld because the impugned allotment was made in breach of the statutory prohibition and could not be sustained by estoppel or by subsequent corporate formalities.

Ratio Decidendi: Where a statute prohibits issue or creation of capital without prior governmental consent and attaches a penalty to breach, an allotment made in violation of that prohibition is void ab initio; such illegality cannot be cured by subsequent acts or by estoppel.

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