Membership by conduct and equitable entitlement to allotment or refund governs standing and remedy for substantial share application money.

Where substantial share application money and conduct demonstrated participation in management, the petitioner was held a member for purposes of petitions under sections concerning oppression and mismanagement; the Board applied the statutory standing threshold that only a person with a stake may maintain such petitions, examined documentary and circumstantial evidence, and found equitable entitlement to allotment. The Board disallowed adjustment of application money against unrelated claims, held that such monies must be met by allotment or refund, directed allotment of specified shares within one month or, alternatively, refund with simple interest at 6% within four months, and dismissed interim contempt allegations.

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Issues: Whether the petitioner, who had furnished substantial share application money and was treated as a participant in management, is a member for the purposes of a petition under Sections 397/398 of the Companies Act, 1956 and, if so, what relief (allotment of shares or refund with interest) should be granted.

Analysis: The Board examined documentary and circumstantial evidence including the chartered accountant's certificate, minutes of conciliation, conduct of the parties, appointment and exercise of managerial powers by the petitioner, and admissions recorded in civil proceedings to determine whether the petitioner must be treated as a member despite absence of formal entry in the register. The Board applied the statutory threshold in Section 399 of the Companies Act, 1956 that only a person with a stake in the company may maintain a petition under Sections 397/398, and considered equitable principles where substantial share application money was outstanding and the company had treated or acted in a manner consistent with the petitioner being entitled to allotment. The Board rejected attempts to treat share application money as adjustable against unrelated personal claims and held that share application money can only be dealt with by allotment or refund. The Board also addressed related interim objections and contempt allegations and found no breach of the interim order by the respondents in entering into a short-term MOU.

Conclusion: The petitioner is to be treated as a member for the purposes of Sections 397/398 of the Companies Act, 1956. The company is directed to allot 1,475,998 shares of Rs.10 each to the petitioner within one month; alternatively, if the company elects not to allot due to strained relations, it shall refund the application money with simple interest at 6% from the date of investment, to be paid within four months. No directions were given regarding loan claims which remain for other proceedings.

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