Oppressive share allotment and proper purpose doctrine led to cancellation of the disputed allotments and correction of the register.

Directors must exercise share-allotment powers for a proper corporate purpose and in the company's interest; an allotment made to secure control or reduce other shareholders to a minority is mala fide and oppressive, and the impugned allotment was set aside. A petition under sections 397 and 398 was maintainable despite the absence of prior foreign exchange permission because permission could be obtained later and the petitioners were registered shareholders with standing. Under section 10F, the High Court could intervene where the Company Law Board's findings were perverse or unsupported by evidence, and it was justified in correcting the erroneous approach. In oppression matters, the proper relief is to cancel the wrongful allotment and restore the register.

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Issues: (i) validity of the allotment of additional equity shares in favour of the managing director and whether it amounted to oppression of the other shareholders; (ii) maintainability of the petition under sections 397 and 398 of the Companies Act in view of the alleged want of prior permission under the Foreign Exchange Regulation Act; (iii) scope of appellate interference by the High Court under section 10F of the Companies Act; and (iv) proper relief where a majority shareholder is reduced to a minority shareholder by oppressive conduct.

Issue (i): Validity of the allotment of additional equity shares in favour of the managing director and whether it amounted to oppression of the other shareholders.

Analysis: The allotment was challenged as having been made without a valid board meeting, without proof of notice or attendance records, and without any demonstrated need for fresh capital. The directors of a company act in a fiduciary capacity and must exercise the power to issue shares for a proper purpose and in the interest of the company. An issue of shares made merely to gain control of the company, especially in a closely held private company, is not a bona fide exercise of power. On the facts, the minutes were found to be sham, the alleged meeting was not proved, and the allotment was designed to convert the existing majority shareholder into a minority shareholder.

Conclusion: The allotment of additional shares was invalid, mala fide, and oppressive, and was rightly set aside.

Issue (ii): Maintainability of the petition under sections 397 and 398 of the Companies Act in view of the alleged want of prior permission under the Foreign Exchange Regulation Act.

Analysis: Permission under the foreign exchange law could be obtained ex post facto, and the absence of prior permission did not defeat the petition. The petitioners were entered as shareholders in the company's register at the time of filing and therefore had the requisite standing. A party who itself facilitated and recorded the share transfer could not later rely on the alleged foreign exchange defect to deny locus standi.

Conclusion: The petition was maintainable and the objection to locus standi failed.

Issue (iii): Scope of appellate interference by the High Court under section 10F of the Companies Act.

Analysis: Although section 10F permits an appeal on questions of law, a finding that is perverse or based on no evidence gives rise to a question of law. The Company Law Board had not adequately examined the core controversy and had proceeded on unsound assumptions. The High Court was therefore justified in examining the matter in depth and in correcting the erroneous approach of the Company Law Board.

Conclusion: The High Court did not exceed its jurisdiction under section 10F.

Issue (iv): Proper relief where a majority shareholder is reduced to a minority shareholder by oppressive conduct.

Analysis: Relief in a case of oppression must undo the advantage gained by the wrongdoer and restore the position distorted by the improper allotment. An order compelling the oppressed shareholder to sell shares to the oppressor would reward the wrongdoer and perpetuate the oppression. The appropriate relief was to cancel the impugned allotments and rectify the register accordingly.

Conclusion: The relief granted by the High Court was correct and the oppressive allotments had to be cancelled.

Final Conclusion: The challenge to the High Court's decision failed, the impugned allotments were held unsustainable, and the appellate interference sought by the appellant was declined.

Ratio Decidendi: Directors must exercise the power of share allotment for a proper purpose and in the interest of the company; an allotment made to secure control or to oppress other shareholders is mala fide, liable to be set aside, and may justify corrective relief in oppression proceedings.

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