Private shareholders' arrangements cannot override public company law; oppression relief requires statutory oppression or prejudice, not mere dispute.

A petition under Sections 397 and 398 remained maintainable where the original written consent satisfied Section 399(3), and later impleaded transferees merely stepped into the shoes of the original members. A private oral shareholders' arrangement could operate while the company was private, but it could not override the statutory scheme or articles after conversion into a public company. Notice, resolutions and the allotment of new shares were treated as valid where the shareholders were adequately informed and the allotment was within the company's powers. Relief for oppression or mismanagement was unavailable because the impugned acts were lawful and the record did not show continuing oppressive conduct or prejudicial mismanagement within the statute.

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Issues: (i) Whether the petition was maintainable under Section 399(3) of the Companies Act, 1956 after the transferees were impleaded without fresh consent; (ii) whether the oral arrangement of 27 July 1954 could be enforced against the company after it became a public company; (iii) whether the notice dated 1 March 1958 and the resolutions of 29 March 1958 and the allotment of 39,000 shares were invalid under Section 81 and Section 173 of the Companies Act, 1956; (iv) whether the facts made out oppression under Section 397 or mismanagement under Section 398 of the Companies Act, 1956.

Issue (i): Whether the petition was maintainable under Section 399(3) of the Companies Act, 1956 after the transferees were impleaded without fresh consent.

Analysis: The right to apply under Sections 397 and 398 had been validly founded on the original written consent of members holding the requisite shareholding. The transferees only stepped into the shoes of the original allottees and their addition did not alter the nature of the proceeding or the relief claimed. The validity of the petition had to be judged as on the date of presentation, and subsequent events did not destroy the original locus standi.

Conclusion: The petition remained maintainable and the objection under Section 399(3) failed.

Issue (ii): Whether the oral arrangement of 27 July 1954 could be enforced against the company after it became a public company.

Analysis: The arrangement regulated the parties while the company functioned as a private concern and was acted upon substantially during that period. But once the company became public, the contractual arrangement could not override the statutory scheme governing a public company or the articles of association. The law relating to transferability, fresh issues of capital, retirement and election of directors, and the rights of the general meeting could not be curtailed by a private arrangement inconsistent with the Companies Act, 1956.

Conclusion: The arrangement could not be enforced as against the public company in a manner contrary to its articles and the Act.

Issue (iii): Whether the notice dated 1 March 1958 and the resolutions of 29 March 1958 and the allotment of 39,000 shares were invalid under Section 81 and Section 173 of the Companies Act, 1956.

Analysis: The notice, read with its explanatory statement and the surrounding circumstances, sufficiently disclosed that the general meeting would decide the manner and proportion of the fresh issue. The shareholders were aware that the matter included the possibility of excluding existing holders. Section 81 permitted the general meeting to give directions contrary to the default pre-emptive rule. The first allotment after conversion of the company into a public company was still an allotment subsequent to the first allotment in law, and the resolutions authorising private allotment to selected persons were not beyond power. The materials also did not establish that the allottees were under the control of the majority, or that the allotment was mala fide or made with such haste as to invalidate it.

Conclusion: The notice, resolutions and allotment were upheld as valid.

Issue (iv): Whether the facts made out oppression under Section 397 or mismanagement under Section 398 of the Companies Act, 1956.

Analysis: The material showed serious group conflict and loss of confidence, but the impugned acts were found to be lawful and not shown to be part of a continuing course of oppressive conduct. The minority had no independent proprietary right to proportional allotment of new shares. The complaints regarding withdrawals, non-consultation, non-disclosure of accounts, and later events did not establish oppression in the statutory sense, nor did they prove gross mismanagement or a likelihood that the company's affairs would be conducted prejudicially to its interests. On the record, the statutory thresholds for relief under Sections 397 and 398 were not satisfied.

Conclusion: No case for relief under Sections 397 or 398 was made out.

Final Conclusion: The statutory petition failed on all material grounds, the reliefs granted by the Company Judge could not stand, and the appeals succeeded.

Ratio Decidendi: A private shareholders' arrangement cannot override the statutory powers of a public company or the general meeting, and relief under Sections 397 and 398 lies only where the complained-of conduct is shown to be oppressive or prejudicial within the meaning of the statute, not merely unlawful in the abstract or the product of a shareholder dispute.

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