GIRDHAR GOPAL GUPTA AND ORS. versus AAR GEE BOARD MILLS PVT. LTD. AND ORS.

Citation: [2009] 1 S.C.R. 711 · Decided: 02-02-2009 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Dismissed

Judgment (excerpt)

(2009] 1 S.C.R. 711 
GIRDHAR GOPAL GUPTA AND ORS. 
A 
v. 
MR GEE BOARD MILLS PVT. LTD. AND ORS. 
(Civil Appeal No. 601 of 2009) 
FEBRUARY 2, 2009 
B 
[DR. ARIJIT PASAYAT, P. SATHASIVAM AND 
AFTAB ALAM, JJ.] 
COMPANIES ACT, 1956: 
c 
ss. 397 and 398 - Allegations of oppression and 
mismanagement, illegal allotment of equity shares resulting 
in conversion of majority shareholding into minority 
shareholding, appointment of Additional Director and removal 
of two Directors - Company Law Board holding allotment of D 
_..,_ 
5564 shares out of 9507 shares as illegal and giving benefit 
of doubt as regards allotment of 3943 shares as it was within 
the knowledge of petitioners, and holding appointment of 
Additional Director and removal of two Directors illegal and 
in favour of petitioners - Appeal by petitioners as regards 
E 
allotment of 3943 shares - HELD: There being some factual 
controversies as regards petitioners ratifying the Balance 
Sheet and their representing before authorities including 
sales tax and income tax authorities, which clearly rule out 
the possibility of petitioners being unaware of the situation -
F 
Considering the nature of controversy it is not a fit case where 
any interference under Article 136 of the Constitution is called 
for - Constitution of India, 1950 - Article 136. 
Respondent no. 1-Company was incorporated as a 
private limited company in which shareholdings of the 
G 
group led by appellant no. 1 was 50.9% and that of the 
~ 
group led by respondent no. 2 was 49.1%. The company 
purchased a sick unit from UPFC in the year 1985 
alongwith its land admeasuring 7215 sq. yards in the 
711 
H 
712 
SUPREME COURT REPORTS 
[2009] 1 S.C.R. 
A Industrial Area of the city. Later the unit was closed. 
Thereafter disputes arose between the parties and the 
matter was referred for arbitration. Awards were given, but 
no steps were taken to make the awards rule of the court. 
On 20.8.1998 the respondent no. 2 group filed return 
B before the Registrar of Companies showing about the 
allotment of 9507 equity shares of Rs.100/- each to have 
been made in their favour in the years 1994 and 1995. With 
the said allotment of shares shareholding of the appellant 
group came down to 13.4% and that of the respondent 
c group rose to 86.6%. The appellant group filed a petition 
u/ss 397 and 398 of the Companies Act, 1956 before the 
Company Law Board alleging oppression and 
mismanagement on the part of respondent group for 
illegal allotment of 9507 equity shares, appointment of an 
0 Additional Director w.e.f. 20.10.1994 at the instance of 
respondent group and removal of two Directors of the 
appellant group from 16.9.1998. The Company Law Board 
held that the allotment of 5564 shares out of 9507 equity 
shares, was illegal and set aside the same. As regards the 
remaining 3943 shares, benefit of doubt was given to 
E respondent group on the ground that this allotment was 
within the knowledge of the appellant group. The Board 
further declared appointment of Additional Director and 
removal of two Directors as illegal. Both the parties filed 
appeals, which were dismissed by the High Court. 
F 
In the instant appeal, it was contended for the 
appellants that allotment of shares could only be done 
by the Board of Directors and there was no presumption 
in law of allotment of shares merely because of receipt 
G of share application money; that by allotment of 3943 
shares the appellants' majority shareholding from 50.9% 
was reduced to 23.5% and as such, the converting of 
majority shares to minority shares was a continuous 
oppression. 
H 
GIRDHAR GOPAL GUPTA AND ORS. v. AAR GEE 
713 
BOARD MILLS PVT. LTD. AND ORS. 
-~ 
Dismissing the appeal, the Court 
A 
HELD: It is true that the allotment of shares is 
different from receipt of share application money, but the 
conduct of the parties and their understanding of the 
situation largely determines the basic issue. There are 
some factual controversies, namely, the effect of the B 
appellants ratifying the Balance Sheet, their appearing 
..... 
before the Sales Tax Authorities and the undisputed 
position with respect to share application money as 
reflected in the financial statements. It is difficult to c 
believe that even though the conversion of the share 
application money was done in June 1994, October, 1994 
and January 1995, it was not in the knowledge of the 
appellants. The fact that the appellants were representing 
the company before v

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