TIN PLATE DEALERS ASSOCIATION PVT. LTD. & ORS.versusSATISH CHANDRA SANWALKA & ORS.

                         [2016] 8 S.C.R. 145



   TIN PLATE DEALERS ASSOCIATION PVT. LTD. & ORS.                        A
                                  v.
            SATISH CHANDRA SANWALKA & ORS.
                   (Civil Appeal No. 589 of20 l 0)
                        OCTOBER 07, 2016                                 B
      [RANJAN GOGOi AND PRA:FULLA C. PANT, JJ.]
      Companies Act, 1956:
       ss.397, 398, 53 - Compa11y petitio11 maintainability of -
Company petilion ll'as filed by lhe respo11dents No. 1-7 (Sanwalka c
group) against the appel!a11ts No.2-5 (Gupta group) - CLB held
pelition maintainable - Shares ll'ere allotted lo lhe respondents after
the forfeiture of the same i11 ha11ds of the appellants - Plea of
appellants 1hat shares 11•ere held by the re.1pondents as beneficiary
holders on behalf of appella11ts and respondenls failed lo compZv
                                                                          D
with the notice 10 pay the u11paid value of fmfeited shares - Held:
Share certificates discloses that the allotment was fresh and
i11depe11dent - Certificates do not contain any stipulation or
condition that the same are being held either on account of a third
person or as beneficiary on behalf of a11y third person - Shares
were held by the respondents in their own right without any E
connection with the fm:feited shares held by the appellants - Also,
compliance of call notice in terms of s.53 was not proved by the
appella11ts and its cm?fimnity ll'ilh clauses <~f Articles of Association
of the company - Therefore. company petition maintainable.
      ss.397, 398 - Oppression and mismanage111enl - Respondenl-         F
Sanwalka group filed company petition alleging oppression by the
appellants-Gupta group and questioning the act of removal of lll'o
members of respondent-Saml'C/lka group jiY1111 the Board of Directors
and induction of two others of appellant-Gupta group in their place
- Held: Satisfaction that oppression has been committed has to be
reached in the facts of each case - Facts of the present case            G
demonstrate a series of unacceptable decisions and actions 011 the
part of the appellants-Gupta group.
     s.205(3) - Issue of bonus shares - Held: Proviso of s.205(3)
permits issue of bonus shares out of revaluation reserves of a
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                                 145
146            SUPREME COURT REPORTS                       [2016] 8 S.C.R.



A     company - Also, Articles of Association of the company to permit
      and contemplate such an action - In the present case, the Articles
      of Association do not empower the Directors to issue bonus shares
      out of revaluation reserves - When the Articles of the company do
      not confer such power in the Board, exercise thereof on the basis
      that the Act so provides would be impermissible - Enabling provisions
B
      under the Act would require incorporation in the Articles of a
      company.
            Company Law:
            Issue of ordinary equity shares - Held: Power of the Board
c     of Directors to issue fi·esh shares is an adjunct of its extensive
      powers under the Companies Act, I956 - Fundamental fair play is
      expected fi·om the Board of Directors in making fair and
      proportionate distribution/allotment of such shares - Issue of
      ordinary equity shares should be proportionate lo the share holdings
      of the members of the company - Companies Act, 1956 - s.I72(2)
D     rlw s.41.
            Issue of ordinary equity shares in lieu of preference shares -
      Conversion of preference shares to equity shares - Held: Resolution
      of the Board relating to the conversion of preference shares into
      equity shares proceeded m1 basis that dividends l1111•e not been paid
 E    and shareholder.1· agreed to accept equivalent equity shares, is
      unreliable - Just and proper to strike down the conversion of
      preference shares into equity shares and revert the preference shares
      to earlier status - Companies Act, 1956 - s.87(2){a).
             Dismissing Civil Appeal No.589 of 2010 and Disposing of
 F    Civil Appeal No.599 of 2010 with directions, the Court
          HELD: 1.1. Share certific;ites disclose that the same
   constitute a fresh and independent allotment of the shares by
   reference to their distinctive numbers specified therein. The
   certificates do not contain any stipulation or condition that the
 G same are being held either on account of a third person or as
   beneficiaries on behalf of any third person. The shares in question
   were allotted on payment of Rs.35 being the application money
   (Rs.25) and allotment money (Rs.10). A further amount of
   Rs.10/- per share was paid against the first call. Therefore, the
   share certificates, ex facie, do not support any of the contentions
 H
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                     147
             CHANDRA SANWALKA

advanced on behalf of appellants-Gupta Grou1>. If the shares were A
held by the members of the respondents-Sanwalka Group in their
own right without any connection to the erstwhile/forfeited shares
held by Mis. Gupta Brothers, the second question arising i.e.
failure to respond to the call notice really does not arise. Be that
as it may, the said notice required the members of the Sanwalka
                                                                        B
Group to pay the unpaid value of the forfeited shares (which
coincidentally was also Rs.55/- per share i.e. same as the unpaid
amount of the shares at the time of forfeiture when held by Mis.
Gupta Brothers) along with interest. In this regard it was found
by the CLB as well as the High Court that even issue of notice of
the call in terms of Section 53 of the Act had not been proved by C
the Gupta Group. That apart, the call notice and forfeiture of the
shares held by the Sanwalka Group, upon alleged failure to comply
with the said notice, does not appear to be in conformity with
Clauses 14 to 18 of the Articles of Association of the Company.
[Para 14)(156-B-F]
                                                                        D
       1.2 Not only the call notice Jiacl not been proved to have
been issued in the matter required under Section 53 of the Act,
the notice also does not mention the consequences of non-
payment i.e. forfeiture. Also the fastening of the liability on the
Sanwalka Group to pay the unpaid amount of the forfeited shares
along with interest is plainly contrary to the provisions of Article E
18 of the Articles of Association. Besides, the elate of the forfeiture
also is not clear though it appears that in a Board Meeting a
decision was taken to restore the said shares to Mis. Gupta
Brothers. The reason for the said decision appears to be to comply
with an order of attachment of the shares passed earlier by the F
Civil Court. All these would demonstrate the apparent falsity of
the claim now made that the forfeiture was due to failure of the
Sanwalka Group to comply with the terms of the call notice. The
primary question i.e. maintainability of the company petition has
to be answered in favour of the respondent-Sanwalka Group.
[Paras 15, 18][157-F-H; 158-A]                                          G
      2. In the present case, the Articles of Association of the
Company do not empower the Directors to so act. No such
situation i.e. issue of bonus shares out of revaluation reserve is
contemplated. When the Articles of the Company do not confer
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148            SUPREME COURT REPORTS                      [2016] 8 S.C.R.


A     any such power in the Board exercise thereof on the basis that
      the Act so provides would be impermissible. Enabling provisions
      under the Act would require incorporation in the Articles of a
      company. The resolution of the Board, in pursuant to which bonus
      shares were issued indicates that the real purpose for issue of
      the bonus shares is to raise funds which were badly needed by
B
      the company at that point of time. On the very face of it, the
      purpose indicated in the resolution is a sham and a pretence
      inasmuch as revaluation of the existing assets of the company
      and issuance of bonus shares :)gainst such revaluation could not
      and did not generate any additional funds as the additional capital
c     available is purely fictional or notional. A self serving interest of
      the Gupta Group (who received all the bonus shares issued) in
      issuing the bonus shares, therefore, is evident. [Paras 20, 21)[159-
      C-D, G-H; 160-A-B]
            Bhagwati Developers v. Peerless General Finance &
D           Investment Co. & Ors. 2005 (2) Suppl. SCR 502;
            Claude-Lila Parulekar (Smt.) v. Sakal Papers (P) Ltd.
            & Ors. (2005) 11 SCC 73 : 2005 (2) SCR 1063 - relied
            on.
        3. So far as the issue of 25,000 equity shares is concerned,
E the  power   of the Board of Directors of the Company to issue
  fresh shares must always be viewed as an adjunct of its extensive
  powers under the Act and the bona fides of such an exercise
  cannot be called into question by construing the power to issue
  fresh shares to be limited by any particular purpose or purposes.
  This was the view of the Company Law Board also. However,
F the same would not detract from the fundamental principle of fair
  play that is to be expected from the Board of Directors in making
  a fair and proportionate distribution/allotment of such fresh
  shares. The direction of the Company Law Board upheld by the
  High Court, namely, that allotment from the aforesaid 25,000 newly
G issued ordinary equity shares should be proportionate to the share
  holding of the two groups taking the members of the Samvalka
  Group as having continued to be members of the company, will,
  therefore, not require any interference. [Para 22)(160-C-E]
            Needle Industries (India) Ltd. & Ors. v. Needle
1-1         Industries Newey (India) Holding Ltd. & Ors. (1981) 3
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                      149
             CHANDRA SANWALKA

      SCC 333 : 1981 (3) SCR 698 - 1·elied on.                         A
      4.1 Insofar the issue of 3065 ordinary equity shares in lieu
of 3065 preference shares is concerned, the apprehension of the
Sanwalka group is that if the equity shares issued against the
said preference shares are allowed to remain alive and valid the
balance would still tilt in favour of the Gupta Group. A reading of    B
the aforesaid Section 87(2) would clearly indicate that except in
situations where dividends have not been paid, holders of
preference shares do not have a right to vote except in matters
which directly affects the rights attached to the preference shares.
[Para 23, 26)[160-J<'-Il; 162-1•'-GJ
                                                                       c
       4.2 The Articles of Association of the Company must
necessarily have to be understood in the light of the provisions
of Section 87 particularly those contained in sub-Section (2). The
meaning sought to be given to Articles 20, 21 and 22 of the
Company, namely, that every share holder including the holder
of a preference share has a right to vote cannot be readily D
accepted. The resolution of the Board relating to the conversion
of preference shares into equity shares proceeds on the basis
that dividends in respect of the 3065 shares have not been paid
and in lieu thereof the shareholders had agreed to receive an
equivalent number of equity shares. The above statement of fact E
is difficult to accept. Neither is the period during which dividends
had not been paid is specified, nor is the amount due indicated.
No material has been laid to show that the 3065 equity shares
represent a fair value of the dividends claimed to be unpaid. The
preference shares in question were held by the Gupta Group who
was in control of the company at that point of time. A number of F
self serving decisions by the Gupta Group and its conduct of the
business of the company in a manner detrimental to the interest
of the company, as discussed hereinabove, would make it
extremely perilous to rely on the version available in the resolution
of the Board for allotment of 3065 equity shares in place of the G
preference shares in question. In the above circumstances it
would be just and proper to strike down the conversion of the
3065 preference shares into equity shares and revert the
 preference shares to its earlier status to be dealt with in the future
in accordance with law. [Para 28J[163-H; 164-A-E]
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150             SUPREME COURT REPORTS                      [2016] 8 S.C.R.


A           5. The question whether a single act of oppression would
      enable the CLB to intervene or oppression must be the
      cumulative result of continuous acts should not require any debate
      in the facts of the present case which demonstrate a series of
      unacceptable decisions and actions on the part of the appellant-
      Gupta Group. In the last resort, satisfaction that oppression has
B
      been committed has to be reached in the facts of each case. [Para
      32][165-C-D]
                             Case Law Reference
              2005 (2) Suppl. SCR 502        relied on       Para20
c             2005 (2) SCR 1063              relied on       Para 20
              1981 (3) SCR 698               relied on       Para22
              CIVIL APPELLATE JURISDICTION: Civil Appeal No. 589 of
      2010.
D          From the Judgment and Order dated 14.09.2005 in APO No. 63
      of2001 passed by Hon 'ble High Court at Calcutta
                                         WITH
              C.A. No. 599 of2010.
 E          Arvind P. Datar, C. A. Sundaram , K. Radhakrishna, Sr. Adv.,
      Nikhil Nayyar, N. Sai, Divyanshu Rai, Ramesh Singh, S. Patra,Ashwani
      Chawla, Ms. Rohini Musa, Zafar lnayat, Abhishek Gupta (For Mis
      Khaitan & Co.), Pratap Venugopal, Ms. Surekha Raman, Ms. Niharika
      (For Mis K. J. John & Co.), Asha Gopalan Nair, Ms. Sadhna Sandhu,
      M. K. Maroria, Pritha Srikumar Iyer, B. Krishna Prasad, Praveen
F     Agrawal, Advs. for appearing parties.
              The Judgment of the Court was delivered by
        RANJAN GOGOi, J. 1. Both the appeals being against the
  common judgment and order of the High Court of Calcutta dated 14'h
G September, 2005 were heard together and are being dealt with by this
  common order.                                          ·
        2. The appellant in Civil Appeal No. 589of2010 isa private limited
  company incorporated in the year 1948 with its registered office at
  Calcutta. The appellants 2 to 5 (hereinafter referred to as the 'Gupta
H Group') had come into control of the company by actions and omissions
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                         151
     CHANDRA SANWALKA [RANJAN GOGOi, J.]

complained of by respondents I to 7 in the said appeal i.e. C.A. No.589   A
of2010 which had led to the institution of the company petition under
Section 397/398 of the Companies Act, 1956 (hereinafter referred to as
the 'Act'). The said respondents may be conveniently referred to as
the "Sanwalka Group".
       3. At the time of its incorporation, the authorised capital of the B
company was Rs. 10 lakh consisting of 4,000 redeemable cumulative
preference shares of Rs. 1001- each and 6,000 ordinary shares of Rs.
100/-each. The paid-up capital of the company before the issue ofnew,
ordinary and bonus shares, which is the bone of contention between the
parties, consisted of 4132 paitly paid ordinary shares and 1868 fully paid
ordinary shares besides 3065 fully paid preference shares. One M/s.
                                                                            c
Gupta Brothers originally held the 4132 partly paid shares. The said
shares were forfeited sometime in the year 1966 and thereafter the
same were issued to the Sanwalka Group who paid a total ofRs.45 for
each share consisting of payment at the time ofapplication and allotment
and Rs. I 0/- per share on a call being made subsequently. Whereas, D
according to Gupta Group, these shares were held by the Sanwalka
Group on behalf of Gupta Brothers, the said fact is denied by the Sanwalka
Group. According to the Sanwalka Group, the Gupta Group without notice
to them had increased the authorized capital of the company to Rs. 5
crores in an Extra Ordinary General Meeting of the Company held on
5.7.1994. No notice of the said meeting was given to the Sanwalka E
Goup. A Board Meeting was held on the same day i.e. 5.7.1994 to give
effect to the above decision taken in the E.O.G.M. to increase the share
capital of the company. In the said Board meeting, a follow up decision
was taken to allot bonus shares at the ratio of 60 bonus shares for every
fully paid up preference and equity share held. The said bonus shares F
were to be issued against revaluation of the industrial plot in Okhla
Industrial Area, New Delhi which was the only asset of the company at
that time. This was not contemplated by the Articles of Association of
the Company, according to the Sanwalka Group. In any case, no bonus
shares were allotted to them. Further more, according to the Sanwalka
Group, pursuant to the decision taken on 5. 7.1994, in August, 1995 the G
company i~sued 3065 equity shares to the holders of the preference
shares (Gupta Group). In February, 1996, 25,000 ordinary equity shares
were again issued to the members of the Gupta Group against which
Rs.40 per share was paid. The said issue was ostensibly to raise additional
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152            SUPREME COURT REPORTS                         [2016] 8 S.C.R.


;\    capital for the company. This allotment was, however. to the exclusion
      of the Sanwalka Group. Contending that the aforesaid acts had the effect
      of reducing th..: Sanwalka Group, which was otherwise in the majority,
      to a negligible minority in the company, the company petition alleging
      oppression was filed before the Company Law Board wherein the act
      of removing two members of the Sanwalka Group from the Board of
B
      Directors (w.e.f.1.7.1991) and inducting two others of the Gupta Group
      in their place was also called into question.
          4. From the reply filed by the Gupta Group to the company petition
  it transpired that the 4132 paitly paid shares held by the Sanwalka Group
  stood forfeited. The aforesaid forfeiture was therefore challenged in the
c company petition with a claim that the said shares be restored to the
  members of the Sanwalka group. During the subsistence of the company
  petition, supplementary applications were also filed challenging the action
  of the Gupta Group in leasing out the industrial plot to sister concerns on
  terms claimed to be prejudicial to the interest of the company and of the
D shareholders.
             5. The eventual reliefs prayed for in the Company Petition in the
      light of the averments made in the said petition and the supplementary
      applications were for:
            (l) restoration of the names of the members of the Sanwalka
 E          Group in the register of members of the company;
            (2) cancellation of the allotment of bonus shares;
            (3) cancellation of the issue and allotment of 25000 partly
            paid up ordinary equity shares to the Gupta Group;
 F          (4) cancellation of3065 equity shares to the holders of the
            3065 preference shares;
            (5) cancellation of the lease agreement in respect of the
            industrial plot and
            (6) restoration of the names of the concerned members of
G           the Sanwalka Group as Directors of the Company.
            6. The Company Petition was opposed by Gupta Group as not
      maintainable in law. According to the Gupta Group, the shares held by
      the members of the Sanwalka Group stood forfeited and the holders
      thereof had ceased to be members of the company.· Such forfeiture,
 H
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                                153
     CHANDRA SANWALKA [RANJAN GOGOi, J.]

according to the Gupta Group, was in the following circumstances.                A
        The said shares were held by the Sanwalka Group as beneficiaries
on behalf of the original holders i.e. Mis. Gupta Brothers. As the shares
held by the Gupta Brothers were partly paid, the Sanwalka Group as
beneficiary holders, was liable to pay the unpaid value of the said shares
along with interest therein on a call being made by the company. Such a          B
call, according to the Gupta Group, was made on 05.01.1991 which went
unanswered. Consequently, the aforesaid shares were forfeited. There
was an alternative contention advanced by Gupta Group to the effect
that in any event the Sanwalka Group were holders of partly paid shares
and they having not responded to the call notice dated 5.1.1991, the
company petition was not maintainable under Section 399 of the Act.              c
        7. The claim of the Sanwalka Group that the issue of bonus shares
was not authorized as the same could not have been issued again the
revaluation reserve was resisted by the Gupta Group by specific reference
to the relevant provisions of the Companies Act, details of which will be
noticed later. It was claimed that in the Board Meeting dated 5.7.1994 D
prop01iionate allotment of bonus shares against the 4132 paiily paid shares
in which the Sanwalka Group held a beneficial interest was offered
subject to payment of the dues against the said shares in term of the call
notice dated 5.1.1991. Insofar as the issue of 25,000 ordinary shares is
concerned, it was contended by the Gupta Group that the said shares E
were issued to infuse badly needed capital into the company. In view of
the clear and expressed disinterest of the Sanwalka Group in the affairs
of the company evidenced by their long silence and failure to respond to
the call notice dated 5.1.1991 and also to paiiicipate in the Board meetings,
it was understood by the Gupta Group that they would not be interested
in allotment of any part of the newly issued share capital i.e. 25,000 F
shares. In any case, according to the Gupta Group, as the members of
the Sanwalka Group had ceased to be members of the company ( 1995)
by the time the 25,000 shares were issued/allotted (February, 1996) they
were not entitled to allotment of any of the said newly issued shares.
       8. Insofar as the lease in respect of the industrial plot is concerned,   G
it was urged on behalf of Gupta Group that the same was done in
consideration of the funds made available by the lessees to raise
construction on the land which was necessary to pre-empt an imminent
forfeiture of the lease itself. The actions of the company, therefore,
were claimed to be in the interest of the company.                               H
154            SUPREME COURT REPORTS                           [2016] 8 S.C.R.



A           9. The Company Law Board (CLB) by an elaborate order dated
      1.3.2001 overruled the objections raised by the Gupta Group to the
      maintainability of the petition. The CLB concluded that the shares held
      by the members of the Sanwalka Group were in their own right,
      independent of any right of Mis. Gupta Brothers all of which stood
      extinguished upon forfeiture of the shares held by the said Gupta
B
      Brothers. The CLB further held that under Article 18 of the Articles of
      Association of the Company, it is Mis. Gupta Brothers who were liable
      to pay the dues, if any, on the said forfeited shares. The Board also
      found that the members of the Sanwalka Group had paid Rs.45 per
      share and though there were an obligation to pay the balance on a call
c     being made the materials on record did not disclose that any such call
      was made at any point of time. In this regard the notice dated 5.1.1991
      was held by the CLB not to be duly proved to have been issued following
      the procedure under Section 53 of the Act. It was also held that the said
      notice dated 5. I .1991 did not contemplate forfeiture of the shares in the
      event of failure to pay the call money as required under Clause 14 of the
D
      Articles ofAssociation of the Company. On the basis of the said findings
      the twin objections raised by the Gupta Group to the maintainability of
      the company petition was held against them.
             I 0. The CLB by its order dated 01.03.2001 further held that the
      issue of bonus shares against revaluation reserve was contrary to the
 E    provisions of Article 96 ofTableA of the Act of 1956. So far as the issue
      of 25,000 ordinary equity shares is concerned, the CLB decided the
      issue in favour of the Gupta Group. However, as the members of the
      Sanwalka Group continued to be members of the company, it was held
      that proportionate allotment of the said equity shares should have been
 F    made to them also. The removal of the two representatives of the
      Sanwalka Group from the Board was also held to be bad on the aforesaid
      count. Of particular significance would be the finding of the Board that
      notice of the EOGM held on 5.7.1994 in which decision was taken to
      raise the share capital of the company was, admittedly, not given to the
      Sanwalka Group though they were entitled to such notice. Insofar as
 G    correctness of the issue of 3065 ordinary equity shares against the
      preference shares is concerned, the Company Law Board felt that it
      would be inappropriate to go into the said question as a related issue was
      pending before the Delhi High Court with regard to the very same
      preference shares. In fact, the issue before the High Court involved the
 H
  TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                             155
       CHANDRA SANWALKA [RANJAN GOGOi, J.]

question as to whether the said shares did exist at all or stood extinguished   A
prior to the date of conversion. Insofar as the lease of the industrial plot
is concerned, the CLB felt that the same should be left open for an
appropriate decision of the company in a General Body Meeting to be
held on the basis of the revised share holding as ordered by the CLB.
       11. Aggrieved by the aforesaid order of the CLB with regard to B
the maintainability of the company petition, issue of bonus shares and
25,000 ordinary equity shares and also the re-induction of the members
of the Sanwalka Group in the Board of Directors, the Gupta Group moved
the Calcutta High Court by filing an appeal under Section I OF of the
Act. Challenging the decision of the Board insofar as the issue of3065 C
preference shares and the lease in respect of the industrial plot is
concerned, the Sanwalka Group had filed a separate appeal. The High
Court, by its impugned order dated 14.9.2005, dismissed both sets of
appeal leading to the institution of the present appeals before this Court.
       12. On the basis of the issues dealt with by the CLB and the High
Court and the arguments advanced on behalf of the parties the issues             D
arising in the two appeals may be summarised as follows:
       (i) Maintainability of the company petition filed by the
          Sanwalka Group before the Company Law Board.
       (ii) Legality of the issue of bonus shares by the company;                E
       (iii) Legality of the issue of25.000 new ordinary shares;
       (iv) Legality of the removal of the representatives of the
          Sanwalka Group from the Board of Directors and the
          induction of the members of Gupta Group in their place;
                                                                                 F
       (v) Legality of the lease agreement executed by the
          company in respect of the industrial plot;
       (vi) Legality of the issue of3065 ordinary equity shares as
          against the preference shares.
       13. We have heard Shri Arvind P. Datar learned senior counsel             G
appearing for the Gupta Group and Shri C.A. Sundaram learned senior
counsel appearing for the Sanwalka Group.
       14. The questions arising, as noticed above, may now be taken up
for consideration.
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156            SUPREME COURT REPORTS                          [2016) 8 S.C.R.



A             Maintainability of the Company Petition -
               Notwithstanding the very elaborate and persuasive arguments
      made by both sides a resolution of the above question is possible by a
      close look of the share certificates issued to the members of the Sanwalka
      Group after allotment of the shares in question following the forfeiture
B     of the same in the hands of Mis. Gupta Brothers. Some of the share
      ce11ificates in question are on record. A reading thereof discloses that
      the same constitute a fresh and independent allotment of the shares by
      reference to their distinctive numbers specified therein. The certificates
      do not contain any stipulation or condition that the same are being held
      either on account of a third person or as beneficiaries on behalf of any
c     third person. The shares in question were allotted on payment of Rs.35
      being the application money (Rs.2S) and allotment money (Rs. I 0). A
      further amount of Rs. I 0/- per share was paid against the first call made
      on 7.8.1986. Therefore, the share ce11ificates, exji1cie, do not suppo11
      any of the contentions advanced on behalf of Gupta Group, details of
D     which have been noticed hereinabove. If the shares were held by the
      members of the Sanwalka Group in their own right without any connection
      to the erstwhile/forfeited shares held by Mis. Gupta Brothers, the second
      question arising i.e. failure to respond to the call notice dated S.1.1991
      really docs not arise. Be that as it may, the said notice required the
      members of the Sanwalka Group to pay the unpaid value of the forfeited
 E    shares (which coincidentally was also Rs.SS/- per share i.e. same as the
      unpaid amount of the shares at the time of forfeiture when held by Mis.
      Gupta Brothers) along with interest. In this regard it was found by the
      CLB as well as the High Court that even issue of notice of the call in
      terms of Section S3 of the Act had not been proved by the Gupta Group.
 F    That apart, the call notice dated S.1.1991 and forfeiture of the shares
      held by the Sanwalka Group, upon alleged failure to comply with the
      said notice, does not appear to be inconformity with Clauses 14 to 18 of
      the Articles of Association of the Company, which are extracted below:-
            "14. If any member fails to pay any call or instalment on or
            before the day appointed for the payment of the same the
G
            Directors may at any time thereafter during such time as
            the call or instalment or any part thereof remains unpaid
            serve a notice on such member requiring him to pay the
            same together with any interest that may have accrued and
            all expenses that the company may have incurred. They
H
  TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                            157
        CHANDRA SANWALKA [RANJAN GOGOi, J.]

      may also write in any such notice that in the event of failure           A
      to pay the amount so due before a particular date the
      Directors shall proceed to forfeitthe shares."     (emphasis
      is ours)

      15. If the amount still remains unpaid the Directors may
                                                                               B
      proceed to forfeit the shares.

      16. A notice of the resolution of forfeiture shall be given to
      the member whose shares have been forfeited.

      17. Any shares so forfeited shall be deemed to held the                  c
      property of the company and the Directors may sell, reallot
      annul the forfeiture or otherwise dispose of the same in
      such a manner as they may think fit.

      18. Any member whose shares have been forfeited shall
                                                                                D
      notwithstanding such forfeiture be liable to pay, and shall
      forthwith pay to the company all calls instalments, interest
      and expenses owing upon or in respect of such shares at
      the time of forfeiture/together with interest thereon, from
      the time of forfeiture until payment at nine per cent per
      annum and the Director may enforce the payment of such                    E
      moneys or any part thereof if they th ink fit, but shal I not be
      under any obligation to do so. The member whose shares
      have been forfeited shall not be entitled to claim the sale
      proceeds of such shares."

                                                                                F
       15. Not only the call notice dated 5. 1.1991 had not been proved to
have been issued in the matter required under Section 53 of the Act, the
notice also does not mention the consequences of non-payment i.e.
forfeiture. Also the fastening of the liability on the Sanwalka Group to
pay the unpaid amount of the fo1feited shares along with interest is plainly
                                                                                G
contrary to the provisions of Article 18 of the A1iicles of Association,
extracted above. Besides, the date of the forfeiture also is not clear
though it appears that in a Board Meeting held on 2.8.1995 a decision
was taken to restore the said shares to Mis. Gupta Brothers. The reason
for the said decision appears to be to comply with an order ofattachment
                                                                                H
158             SUPREME COURT REPORTS                          [2016) 8 S.C.R.



A     of the shares passed earlier by the Civil Court. All these would
      demonstrate the apparent falsity of the claim now made that the forfeiture
      was due to failure of the Sanwalka Group to comply with the terms of
      the call notice dated 5 .1.1991.
              16. To overcome the aforesaid difficulties, an argument has been
B     made on behalfofGupta Group that even ifthe call notice dated 5.1.1991
      is not to be relied upon, in the Balance Sheet dated 31.3 .1992 the amounts
      due have been shown as calls-in-arrears. The said document was duly
      circulated. The Sanwalka Group, therefore, had full knowledge that unpaid
      call money is due.
c            17. Besides the fact that there is no co-relation between the
      amounts mentioned in the call notice dated 5.1.1991 and the Balance
      Sheet dated 31.3 .1992, the members of the Sanwalka Group were
      removed from the Board of Directors on I. 7.1991 i.e. before the
      finalisation of the Balance Sheet dated 31.3 .1992. In any case, the
      procedure for forfeiture of shares as a consequence of failure to respond
D     to a call notice are unambiguously set out in details in the Articles of
      Association of the Company, extracted above. A balance sheet does not
      and cannot operate as an alternative to a call notice.
             18. If the primary question i.e. maintainability of the company
      petition has to be answered in favour of the Sanwalka Group, as we are
 E    inclined to, the other issues highlighted in the earlier part of this order
      would now have to be considered.
            Issue of 25,000 ordinary equity shares -
          19. There is no denial of the fact that notice of the E.O.G.M.
F dated 5. 7 .1994 was not given to the members of the Sanwalka Group
  though they, admittedly, continued to be members of the company on the
  date of the meeting. It is pursuant to the decision taken in the said
  E.O.G.M. dated 5. 7.1994 to raise the share capital of the company from
  Rs. I 0 lakh to Rs.5 crores that the other decisions with regard to bonus
  shares; the issue of25,000 ordinary equity shares and the conversion of
G prefere1~ce shares to equity shares were made subsequently. Such notice
  is mandatory under Section 172(2) read with Section 41 of the Act. This
  is, exfacie, apparent from the reading of the said provisions of the Act.
  Reference to the elaborate case laid before us on this score would,
  therefore, not be required.
H
  TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                          159
       CHANDRA SANWALKA [RANJAN GOGOi, J.]

       20. Specifically, so far as the issue of bonus shares is concerned,   A
the arguments laid down before us would require a consideration whether
Section 205(3) of the Act, particularly, the proviso thereto permits issue
of bonus shares out of revaluation reserves of a company. The further
question that would arise is the correct interplay between the provisions
of the Act and those contained in the Articles of Association of a
                                                                             B
Company. So far as the issue with regard to utilization ofreserves arising
from revaluation of assets for the purpose of issuing fully paid bonus
shares is concerned, the same has been held to be permissible in BIU1gwati
Developers Vs. Peerless General Finance & J11vestme11t Co. & Ors. 1 •
However, it has to be noticed that in B/U1gwati Developers (supra)
the Articles of Association (Article 182) specifically permitted/            c
contemplated such a course of action. In the present case, the Articles
of Association of the Company do not empower the Directors to so act.
No such situation i.e. issue of bonus shares out ofrevaluation reserve is
contemplated. When the Articles of the Company do not confer any
such power in the Board exercise thereof on the basis that the Act so
                                                                             D
provides would be impermissible. Enabling provisions under the Act would
require incorporation in the Articles of a company. To the above effect
the view of this Court in Para 25 of the C/a11de-Lila Paru/ekar (Smt.)
Vs. Sakal Papers (l') Ltd. & Ors.2 is relevant -
      "25. Section 36 of the Companies Act, 1956 makes the
      memorandu.m and articles of the company, when registered,               E
      binding not only on the company but also the members inter
      se to the same extent as if they had been signed by the
      company and by each member and covenanted to by the
      company and each shareholder to observe all the provisions
      of the memorandum and of the articles. The articles of                  F
      association constitute a contract not merely between the
      shareholders and the company but between the individual
      shareholders also. The articles are a source of power of
      the Directors who can as a result exercise only those powers
      conferred by the articles in accordance therewith. Any
      action referable to the aiiicles and contrary thereto would            G
      be ultra 1•ires."
      21. That apait, the resolution of the Board dated 5. 7.1994 pursuant
to which bonus shares were issued indicates that the real purpose for
1
  <2005) 6 sec 718
' (2005J 11 sec 73                                                            H
160             SUPREME COURT REPORTS                           [2016] 8 S.C.R.



A     issue of the bonus shares is to raise funds which were badly needed by
      the company at that point of time. On the very face of it, the purpose
      indicated in the resolution is a sham and a pretence inasmuch as
      revaluation of the existing assets of the company and issuance of bonus
      shares against such revaluation could not and did not generate any
      additional funds as the additional capital available is purely fictional or
B
      notional. A self serving interest of the Gupta Group (who received all
      the bonus shares issued) in issuing the bonus shares, therefore, is evident.
             22. So far as the issue of25,000 equity shares is concerned, there
      can be no manner of doubt that the decision of the Board to issue the
      said shares has to be tested in the light of the wide powers of the Board
c     to act in such matters as has been laid down by this Court in Needle
      Industries (Int/in) Ltd. & Ors. Vs. Needle Industries Newer (Int/in)
      Holding Ltd. & Ors. 3 • The power of the Board of Directors of the
      Company to issue fresh shares must always be viewed as an adjunct of
      its extensive powers under the Act and the bona fides of such an exercise
D     cannot be called into question by construing the power to issue fresh
      shares to be limited by any particular purpose or purposes. This was the
      view of the Company Law Board also. However, the same would not
      detract from the fundamental principle of fair play that is to be expected
      from the Board of Directors in making a fair and proportionate
      distribution/allotment of such fresh shares. The direction of the Company
 E    Law Board upheld by the High Court, namely, that allotment from the
      aforesaid 25,000 newly issued ordinary equity shares should be
      propo1tionate to the share holding of the two groups taking the members
      of the Sanwalka Group as having continued to be members of the
      company, will, therefore, not require any interference.
 F           23. Insofar the issue of3065 ordinary equity shares in lieu of3065
      preference shares is concerned, the CLB and the High Court had thought
      it proper to leave the matter for a just determination by the Delhi High
      Court in view of the suit filed by the Sanwalka Group contending that
      the said shares had ceased to exist in the year I 967 and therefore no
 G    equity shares could have been issued in lieu of the said preference shares
      as has been done. The suit in question which is of the year 1996 may
      take some further time for resolution. In such circumstances, the
      apprehension of the Sanwalka group is that if the equity shares issued
      against the said preference shares arc allowed to remain alive and valid

 H    '(1981) 3 sec 333
 TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                            161
      CHANDRA SANWALKA [RANJAN GOGOi, J.]

the balance would still tilt in favour of the Gupta Group.                    A
       24. It is not known whether the High Court had been requested
by the parties to make an interim arrangement and if so the result thereof.
However, before us, the Gupta Group has sought to contend that the
above apprehension of the Sanwalka Group is unfounded. It is claimed
that it is not correct that by virtue of the conversion of the 3065           B
preference shares into equity shares the Gupta Group has emerged in
the majority for the first time. Even prior to such conversion, the Gupta
Group was in a majority inasmuch as the preference shares always
carried a right to vote. Therefore, even on the basis of the original share
holding, the Gupta Group was in majority.
                                                                              c
       25. We cannot countenance the aforesaid submission advanced
on behalf of the Gupta Group in view of the provisions of Section 87 of
the Act particularly sub-section (2) thereof which is in the following
terms:
      "(2) (a) Subject as aforesaid and save as provided in clause
                                                                               D
      (b) of this sub-section, every member of a company limited
      by shares and holding any preference share capital therein
      shall, in respect of such capital, have a right to vote only on
      resolutions placed before the company which directly affect
      the rights attached to his preference shares.
                                                                               E
       Explanation. : Any resolution for wi1iding up the company
       or for the repayment or reduction of its share capital shall
       be deemed directly to affect the rights attached to preference
       shares within the meaning of this clause.
                                                                               F
       (b) Subject as aforesaid, every member ofa company limited
       by shares and holding any preference share capital therein
       shall, in respect of such capital, be entitled to vote on every
       resolution placed before the company at any meeting, if the
       dividend due on such capital or any part of such dividend
       has remained unpaid :                                                   G

       (i) in the case of cumulative preference shares. in respect
       of an aggregate period ofn6t less than two years preceding
       the date of commencement of the meeting ; and

                                                                               H
162            SUPREME COURT REPORTS                           [2016] 8 S.C.R.



A           (ii) in the case ofnon-cumulative preference shares, either
            in respect of a period of not less than two years ending
            with the expiry of the financial year immediately preceding
            the commencement of the meeting or in respect of an
            aggregate period of not less than three years comprised in
            the six years ending with the expiry of the financial year
B
            aforesaid.

            Explanation. : For the purposes of this clause, dividend
            shall be deemed to be due on preference shares in respect
            of any period, whether a dividend has been declared by the
c           company on such shares for such period or not,

            (a) on the last day specified forthe payment of such dividend
            for such period, in the articles or other instrument executed
            by the company in that behalf; or

D
            (b) in case no day is so specified, on the day immediately
            following such period.

            (c) where the holder of any preference share has a right to
            vote on any resolution in accordance with the provisions of
 E          this sub-section, his voting right on a poll, as the holder of
            such share, shall, subject to the provisions of section 89 and
            sub-section (2) of section 92, be in the same proportion as
            the capital paid up in respect of the preference share bears
            to the total paid-up equity capital of the company."

 F
             26. A reading of the aforesaid Section 87 (2) would clearly indicate
      that except in situations where dividends have not been paid, holders of
      preference shares do not have a right to vote except in matters which
      directly affects the rights attached to the preference shares.
G            27. Reliance has been placed on Articles 20, 21 and 22 of the
      Articles of Association of the Company to claim voting rights against the
      preference shares held by the Gupta Group. It will therefore be necessary
      to take note of the said Articles which are in the following terms:
               "20. The following rights are attached to these shares as
H            regards dividends, voting rights and redemption -
 TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                             163
      CHANDRA SANWALKA [RANJAN GOGOi, J.]

      (a) Preference shares shall carry a fixed cumulative free                A
         oflncome-tax dividend@ of 6% per annum in preference
         to ordinary or any other class of shares.
      (b )Preference shares shall be redeemable at any time after
         a period of 5 or I 0 years from the date of allotment at
         the option of Directors of the company or at the option
                                                                               B
         of the holder thereof respectively, provided a notice of
          three months in writing is given by the company to the
          holders thereof or vice-versa as the case may be.

      (c)After payment cumulative dividend of6% free of tax 01-i
         preference shares, the balance of the net divisible profits            c
         (as may be recommended by the directors) shall be
         utilized for payment of dividend@9% on ordinary shares.

      (d)Any net divisible profits as may be recommended by the
         Directors remaining after payment of cumulative dividend
                                                                                D
         or preference shares and dividend on ordinary shares as
         mentioned above shall be divided between the preference
         and ordinary shares equally on the basis of paid up capital
         in the company.

      ( e )Preference shares shall also have a preference for                   E
           repayment of capital at the time of the winding up of the
           company in preference to any class of shares.

      21. On show of hand every shareholders present in shall
      have one vote and upon poll every shareholder present in
                                                                                F
      person or any proxy shall have one vote for each share
      held by him or her. A poll may be demanded in accordance
      with law.

      22. A holder of any shares shall not be entitled to a vote
      either by show of hand or at poll unless there have been                  G
      paid to the company all sums of money then due from that
      holder in respect of these shares."
        28. The aforesaid Articles must necessarily have to be understood
in the light of the provisions of Section 87 particularly those contained in
                                                                                H
164             SUPREME COURT REPORTS                           [2016] 8 S.C.R.



A     sub-Section (2). The meaning sought to be given to Articles 20, 21 and
      22, extracted above, namely, that every share holder including the holder
      of a preference share has a right to vote cannot be readily accepted.
      The resolution of the Board dated 5. 7.1994 relating to the conversion of
      preference shares into equity shares proceeds on the basis that dividends
      in respect of the 3065 shares have not be.en paid and in lieu thereof the
B
      shareholders had agreed to receive an equivalent number of equity shares.
      The above statement of fact is difficult to accept. Neither is the period
      during which dividends had not been paid is specified, nor is the amount
      due indicated. No material has heen laid to show that the 3065 equity
      shares represent a fair value of the dividends claimed to be unpaid.
c     What cannot also be lost sight of is that the preference shares in question
      were held by the Gupta Group who was in control of the company at
      that point oftime. A number of self serving decisions by the Gupta Group
      and its conduct of the business of the company in a manner detrimental
      to the interest of the company, as discussed hereinabove, would make it
D     extremely perilous to rely on the version available in the resolution of the
      Board for allotment of 3065 equity shares in place of the preference
      shares in question. In the above circumstances it would be just and
      proper to strike down the conversion of the 3065 preference shares into
      equity shares and revert the preference shares to its earlier status to be
      dealt with in the future in accordance with law. This is, of course, subject
E     to the orders of the Delhi High Court in the appeal pending before it.
            Lease of the Industrial Plot
            29. If the forums below have left the above matter for a just
      determination in an Extra Ordinary General Meeting of the Company, in
      view of the directions hereinabove, we do not consider it necessary to
F     deal with the said aspect of the case any further.
             30. Before parting, certain subsidiary issues raised on behalf of
      the parties may be briefly noticed ifonly to make the discussion complete.
            The failure of the High Court to frame a substantial question of
G     law to hear the appeal before it can hardly invalidate the order passed.
      The order of the High Court is an order of affirmation; further there is
      no provision in Section 1OF of the Act which is akin to the provisions
      contained in Section 100 (4) of the Code of Civil Procedure, 1908.
           31. The argument that having regard to the conduct of the Gupta
      Group in managing the affairs of the Company and all decisions taken
H
  TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH                            165
       CHANDRA SANWALKA [RANJAN GOGOi, J.]

being in the best interest of the Company, no case for winding up is           A
made out so as to justify the exercise of powers under Section 397/398
of the Act by the CLB, would hardly require a detailed consideration in
view of the specific findings of the High Court in this regard, which are
wholly adverse to the Gupta Group. The said view and the conclusions
reached have our approval, as already indicated. Besides, the High Court
                                                                               B
in the order under challenge has taken into account that apart from the
industrial plot in question the Company has no subsisting business and
that the terms of the lease entered into by the Gupta Group in respect of
the said property are wholly adverse to the Company's interest.
      32. The question whether a single act of oppression would enable          C
the CLB to intervene or oppression must be the cumulative result of
continuous acts should not require any debate in the facts of the present
case which demonstrate a series of unacceptable decisions and actions
on the part of the Gupta Group. In the last resort, satisfaction that
oppression has been committed has to be reached in the facts of each
case.                                                                           D
      33. In view of the above discussions and for the reasons alluded,
Civil Appeal No.589 of 2010 filed by the Gupta Group is dismissed
whereas Civil Appeal No.599 of 20 I 0 filed by the Sanwalka Group is
disposed of with directions, as contained in the present order.
                                                                                E

Ankil Gyan                                              Appeals disposed of.