Mandatory corporate approval and notice requirements controlled share allotment and director removal despite a private arbitral arrangement.

Conversion of loan into share capital required prior special resolution under the statutory scheme for further issue of share capital, and the allotment of 26,000 equity shares was upheld as cancellable because that prerequisite was not shown. Removal of the petitioners as directors also failed for want of statutory notice and compliance with the Companies Act, 2013, since the company did not prove proper service for the meetings relied upon. The arbitral arrangement between family members did not override mandatory corporate formalities for share transfer, resignation, removal, or cessation of office, so the impugned order was left undisturbed.

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Issues: (i) Whether the allotment of 26,000 equity shares pursuant to conversion of loan into share capital was liable to be cancelled for want of a prior special resolution; (ii) Whether the removal of the petitioners as directors was invalid for want of statutory notice and proper compliance with the Companies Act, 2013.

Issue (i): Whether the allotment of 26,000 equity shares pursuant to conversion of loan into share capital was liable to be cancelled for want of a prior special resolution.

Analysis: The conversion of a loan into shares is permissible only under the statutory scheme governing further issue of share capital, and the proviso requires that the terms enabling such conversion must be approved by special resolution before the loan is raised. A later conversion without proof of compliance with that prerequisite cannot be sustained merely because the parties had earlier reached a private arrangement or arbitral understanding. The Court found no substance in the challenge to the tribunal's view that the required corporate approval was not shown.

Conclusion: The cancellation of the allotment was upheld and the challenge failed.

Issue (ii): Whether the removal of the petitioners as directors was invalid for want of statutory notice and proper compliance with the Companies Act, 2013.

Analysis: Vacation of office under the director-vacancy provision requires proper notice of the meetings relied upon for alleged absence, and the burden lay on the company to show that such notice had been served. The Court also held that an arbitral award between family members did not by itself dispense with statutory requirements for transfer of shares, resignation, removal, or other corporate formalities. Until those steps were lawfully completed, the petitioners could not be treated as having ceased to be directors merely on the basis of the award.

Conclusion: The finding that the removal of the petitioners as directors was bad in law was affirmed.

Final Conclusion: The appeal failed because the arbitral arrangement did not override mandatory corporate law requirements, and the impugned order was left undisturbed.

Ratio Decidendi: A private or consensual arbitral arrangement concerning company ownership or control does not supersede mandatory statutory requirements for share allotment, director removal, and corporate notice, and such acts remain valid only if completed in accordance with the Companies Act.

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