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of <h1>Illegal Share Allotment & Meeting Voided under Companies Act, 2013</h1> The Tribunal found the allotment of shares made on 25.03.2017 to be illegal and oppressive due to violations of the Companies Act, 2013. The Extra ... Validity of allotment of shares to majority shareholders of private limited company - family company - rectification of member’s register of the R-1 Company - legality of the Extra Ordinary General Meeting conducted on 23.03.2017 - legality of board meetings held on 28.02.2017 and 25.3.2017 - HELD THAT:- It is mandatory to offer to the shares to the existence shareholders in proportions their shareholding and this Tribunal does not find any document to establish that the company issued letter of offer to the existing shareholder for offering the shares for subscription. The NCLT at para 32 observed that there is no proof to show that offer is made to the petitioners for purchasing the shares. No proof that such an offer is made to any of the Petitioners to purchase the shares. There is also no valuation report to value the shares of the Company. This Tribunal having gone through the documents and the relevant provisions of law is of the view that the Company has not complied with the law with regard to allotment of shares to the existing shareholders and also has not followed the mandatorily requirement of notice calling EOGM. The stand of the Company is that since it is a family Company and the decisions are taken in an informal manner by the members and no formal notices were required to be issued in view of the closely held family company. Be that as it may, between the equity and law, the law will prevail. In the present case, the NCLT and this Tribunal is firm opinion that the company has not followed the principles of natural justice by issuing notice for the EOGM and issue letter of offer to the existing shareholders of the Company for allotment of shares. Appeal dismissed. Issues Involved:1. Legality of the allotment of shares made on 25.03.2017.2. Validity of the Extra Ordinary General Meeting (EOGM) conducted on 23.03.2017.3. Compliance with Section 62 of the Companies Act, 2013 regarding further issue of shares.4. Issuance of notices for Board Meetings and General Meetings.5. Allegations of oppression by the Respondents against the Appellants.Issue-wise Detailed Analysis:1. Legality of the allotment of shares made on 25.03.2017:The Appellants argued that the allotment of shares on 25.03.2017 was in line with the company's customary practice of issuing shares against loans and advances received from directors and shareholders. They contended that the increase in authorized share capital and the allotment of shares were necessary for the commercial needs of the company. However, the Respondents challenged this allotment, claiming it was done without proper notice and was illegal. The Tribunal found that the allotment of shares exclusively to certain members, excluding others, was in violation of Section 62 of the Companies Act, 2013, and was therefore illegal and oppressive.2. Validity of the Extra Ordinary General Meeting (EOGM) conducted on 23.03.2017:The Respondents contended that they did not receive any notice for the EOGM held on 23.03.2017, where the decision to increase the authorized share capital and allot 30,000 equity shares was made. The Tribunal noted that there was no substantial proof that notices were issued for convening the EOGM to all members. Consequently, the Tribunal held that the EOGM conducted on 23.03.2017 was illegal and void due to the lack of proper notice.3. Compliance with Section 62 of the Companies Act, 2013 regarding further issue of shares:Section 62 mandates that further shares should be offered to existing shareholders in proportion to their shareholding. The Tribunal found no evidence that the company issued a letter of offer to existing shareholders for subscribing to the shares in proportion to their shareholding. The allotment of shares exclusively to certain members, excluding others, was deemed to violate the mandatory provisions of Section 62, making the allotment illegal.4. Issuance of notices for Board Meetings and General Meetings:The Respondents alleged that they did not receive notices for the Board Meetings and General Meetings, including the EOGM held on 23.03.2017. The Tribunal observed that there was no proof of issuance of notices for these meetings, which is a mandatory requirement under Sections 100 and 101 of the Companies Act, 2013. The absence of such notices rendered the meetings and the resolutions passed therein illegal.5. Allegations of oppression by the Respondents against the Appellants:The Respondents accused the Appellants of oppressing them by manipulating the shareholding pattern and excluding them from critical decisions. The Tribunal acknowledged the oppressive actions of the Appellants, noting that the allotment of shares without proper notice and in violation of statutory provisions was detrimental to the interests of the excluded shareholders. The Tribunal upheld the NCLT's decision to set aside the allotment of shares and restore the shareholding pattern to its state before the impugned allotment.Conclusion:The Tribunal concluded that the Appellants failed to comply with the legal requirements for issuing further shares and did not follow the principles of natural justice. The order passed by the NCLT was deemed well-reasoned and required no interference. Consequently, the appeal was dismissed, and the interim order was vacated.
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