Illegal Share Capital Increase Rectified, Shareholding Restored, Additional Shares Issued within 3 Months

The Tribunal held that the petition was not time-barred due to the continuous and recurring impact of the wrongful act of increasing authorized share capital without proper notice. It deemed the increase in shares and subsequent allotments illegal, setting aside filings and restoring the shareholding pattern. The Register of Members was to be rectified, reflecting the original capital and subscribers. The Appellants were directed to issue additional shares to specific respondents, restoring their shareholding to 2007 levels within three months. No costs were awarded.

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Issues Involved:
1. Whether the petition is time-barred.
2. Legality of the increase in authorized share capital from 3,40,000 shares to 7,90,000 shares.
3. Reliefs sought by the petitioners.

Issue-wise Detailed Analysis:

Issue No.1 - Whether the Petition is Time-Barred:
The Tribunal determined that the petition was not barred by the law of limitation. It reasoned that the wrongful act of increasing the authorized share capital and allotting shares without proper notice had a continuous and recurring effect on the rights of the petitioners, who were shareholders. This ongoing impact justified the Tribunal's interference, thereby making the petition maintainable.

Issue No.2 - Legality of the Increase in Authorized Share Capital:
The Tribunal found that the increase in authorized share capital from 3,40,000 shares to 7,90,000 shares, as decided in the AGM held on 30.09.2011, and the subsequent allotments made on 30.12.2011, were illegal and void. The Tribunal noted that the proper notice was not served to the petitioners, and there was an absence of any offer to them. Consequently, all filings with the Registrar of Companies (RoC) from 30.09.2011 to the date of the order were set aside, and the shareholding pattern was restored to the status as of the AGM held on 07.07.2007.

Reliefs:
The Tribunal ordered the rectification of the Register of Members to reflect the issued and paid-up capital as 3,40,000 shares of Rs. 10/- each, as held by the original subscribers. The Appellants were directed to comply with this rectification within ten days from the receipt of the certified copy of the order.

Appellate Tribunal's Observations:
The Appellants argued that reversing the paid-up capital to the level of the Financial Year 2011-12 and setting aside all filings with the RoC would cause commercial and legal complications, including a reduction in the borrowing power of the company. They suggested issuing additional shares to the Respondent No.1 & 2 to restore their shareholding level to what it was on 07.07.2007/30.09.2011, which would not financially burden the company.

The Tribunal agreed that annulling the allotment of shares and refiling reports with the RoC would not be in the company's best interest. Instead, it found that issuing further shares to Respondent No.1 & 2 at the same price as those taken by the Appellants would be a just and equitable solution, restoring their shareholding percentage to the 2007 level.

Conclusion:
The Tribunal set aside the order of the lower Tribunal and directed the Appellants to issue additional shares to Respondent No.1 & 2 within three months, restoring their shareholding to the 2007 level. The Tribunal did not address the purchase of shares by the Appellants from Respondent No.1 & 2 based on expert valuation, as it was not part of the relief sought in the judgment. There was no order as to costs.

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