Shareholders' petition successful due to illegal share capital increase & lack of notice, oppression & breach of duty.

The petition was deemed not time-barred as continuous oppression justified interference. The increase in authorized share capital and share allotment without proper notice rendered the petition maintainable. The increase in share capital was found to be illegal and void due to lack of proper notice and offer to the petitioners, constituting gross oppression and breach of fiduciary duty. The annual general meeting and share allotments were declared null and void, filings with the Registrar of Companies were set aside, and the shareholding pattern was restored. The petition was allowed, interim orders vacated, and no costs were awarded.

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Issues Involved:

1. Whether the petition is time-barred.
2. Whether the increased authorized capital of the first respondent-company from 3,40,000 shares to 7,90,000 shares on December 30, 2011 is illegal and void.
3. Reliefs.

Issue-wise Detailed Analysis:

Issue 1: Whether the petition is time-barred.

The respondents argued that the petitioners' complaint about the increase of authorized capital in 2011-2012 was filed long after the event, making it an isolated transaction without allegations of oppression or mismanagement, thus rendering the petition non-maintainable. The petitioners contended that they discovered the increase in paid-up share capital during an inspection of the company's records at the Registrar of Companies. The Tribunal noted that the petitioners did not specify when the inspection occurred. Despite the petition being filed on February 9, 2015, after a lapse of three years from the alleged wrongful act, the Tribunal emphasized that continuous oppression can justify interference. The increase in authorized share capital and allotment of shares without proper notice and offer to the petitioners constituted a wrongful act with recurring effects on the petitioners' rights. Hence, the petition was deemed not barred by the law of limitation and maintainable.

Issue 2: Whether the increased authorized capital of the first respondent-company from 3,40,000 shares to 7,90,000 shares on December 30, 2011 is illegal and void.

The petitioners argued that they received no notice regarding the company's affairs or annual general meetings for three years, nor were they paid dividends. They discovered the increase in share capital to 7,90,000 shares in 2012, which diluted their shareholdings without intimation. The respondents claimed the share allotment was done per City Bank's requirements, and the petitioners were offered proportionate shares but refused. The Tribunal found that the notice for the sixth annual general meeting, sent on August 30, 2011, was an inland letter card without any enclosures, including the agenda for increasing authorized capital and share allotment. No acknowledgment for any additional letter offering proportionate shares was produced by the respondents. The Tribunal concluded that the respondents failed to provide a reasonable explanation for increasing the authorized capital without following due process. The share allotments made on December 30, 2011, to the fifth respondent, his two sons, and wife were intended to create a new majority, constituting gross oppression and breach of fiduciary duty.

Reliefs:

The Tribunal declared the annual general meeting dated September 30, 2011, and the share allotments on December 30, 2011, as null and void due to the lack of proper notice and offer to the petitioners. Consequently, all filings with the Registrar of Companies from September 30, 2011, to the present were set aside. The shareholding pattern was restored to 3,40,000 equity shares of Rs. 10 each, as per the petition. The register of members was ordered to be rectified within ten days of receiving the certified copy of the order.

Conclusion:

T.C.P. No. 159 of 2016 was allowed, and any interim orders were vacated. No order as to costs was made. The order was pronounced in open court.

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