Oppressive share allotment and selective exclusion of shareholders can justify setting aside the allotment and limited impleadment.
Unequal allotment of additional shares can amount to oppression where a board, though acting within formal powers, favours one shareholder group and excludes another without giving an equal opportunity, especially when the exclusion has continuing prejudicial effect. In this matter, the impugned allotment was treated as oppressive and was set aside in substance by directing equivalent shares to the petitioners. On the mismanagement allegations, a general investigation was refused because most claims lacked concrete material or related to past or commercial decisions, but the IMAX project and related investment raised a live issue of possible diversion of funds. Prasad Media Corporation Ltd. was impleaded for that limited controversy.
Issues: (i) Whether the allotment of additional shares in favour of the respondent group, to the exclusion of the petitioners, was oppressive and liable to be set aside. (ii) Whether the allegations of mismanagement and diversion of funds warranted investigation or other reliefs, and whether Prasad Media Corporation Ltd. should be impleaded.
Issue (i): Whether the allotment of additional shares in favour of the respondent group, to the exclusion of the petitioners, was oppressive and liable to be set aside.
Analysis: The authorised share capital was increased with the petitioners' support and further shares were offered to all shareholders in proportion to their existing holdings. The petitioners' claimed acceptance of the offer was found doubtful on the facts, but the decisive feature was that the board allotted 1,32,594 shares to the respondent group against amounts lying to their credit, while returning the petitioners' credit balances without affording them the same opportunity. The board had also resolved to grant the petitioners additional time to bring in share application money before the unsubscribed shares were allotted to the respondent group. In these circumstances, the allotment was not treated as a bona fide and equal exercise of the directors' discretion. The exclusion of the petitioners had a continuing prejudicial effect and amounted to oppression within the meaning of the remedy under sections 397 and 398.
Conclusion: The impugned allotment was held oppressive and was set aside in substance by directing transfer of equivalent shares to the petitioners, in their favour.
Issue (ii): Whether the allegations of mismanagement and diversion of funds warranted investigation or other reliefs, and whether Prasad Media Corporation Ltd. should be impleaded.
Analysis: Most allegations of mismanagement were treated as past transactions, matters already considered by the board, commercial decisions, or assertions unsupported by concrete material. On that basis, a general investigation into the company's affairs was not ordered. However, the statements in the annual reports and the surrounding circumstances showed that the IMAX theatre project, the investment in Prasad Media Corporation Ltd., and the counter-guarantee raised a live issue of possible diversion of funds requiring adjudication. Prasad Media Corporation Ltd. was therefore considered a necessary party to answer those allegations. The prayer to implead the subsidiary company was declined because the alleged diversion concerning it could be examined without its presence on the facts then before the Board.
Conclusion: No general investigation into the company's affairs was ordered, Prasad Media Corporation Ltd. was impleaded as a respondent, and impleadment of the subsidiary company was refused.
Final Conclusion: Relief was granted only to the extent of correcting the oppressive share allotment and bringing in Prasad Media Corporation Ltd. for the limited controversy concerning the IMAX project and alleged diversion of funds, while the remaining mismanagement allegations were left without immediate relief.
Ratio Decidendi: Where a board's share allotment, though formally within its powers, is made unevenly so as to exclude one group of shareholders while favouring another without equal opportunity and with continuing adverse effect, the allotment may constitute oppression and be set aside under the minority oppression remedy.
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