2009 (2) TMI 458 - SC - Companies Law

Whether this is a case where jurisdiction under article 136 of the Constitution should be exercised? Held that - Appeal dismissed. There are some factual controversies, for example, the effect of the appellants ratifying the balance-sheet, 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 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 various authorities including the sales tax authorities and income-tax authority clearly rules out the possibility of the appellants being unaware of the situation. 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. Thus considering the nature of the controversy we do not consider this to be a fit case where any interference under article 136 of the Constitution is called for.

Summary

Issues Involved:
1. Maintainability of the appeal.
2. Legality of the allotment of 9,507 equity shares.
3. Appointment of additional director Mr. Parmanand.
4. Removal of Mr. Girdhar Gopal Gupta and Mr. Ram Narain Gupta as directors.
5. Distribution of assets of the company.

Detailed Analysis:

1. Maintainability of the Appeal:
The appeal was filed against the judgment of a Division Bench of the Delhi High Court which dismissed the appeal as not maintainable. The Supreme Court granted leave to appeal and thus proceeded to examine the issues involved.

2. Legality of the Allotment of 9,507 Equity Shares:
The primary contention was the illegal allotment of 9,507 equity shares by the Garg group, which drastically altered the shareholding pattern. The Company Law Board (CLB) found that the allotment of 5,564 shares was illegal due to the absence of notice/minutes of board meetings and set aside this allotment. However, the allotment of 3,943 shares was upheld as the balance-sheet signed by the Gupta group indicated share application money, suggesting their knowledge of the allotment. The High Court confirmed this finding, noting the lack of produced notices/minutes and the delayed filing of the return of allotment with the Registrar of Companies.

3. Appointment of Additional Director Mr. Parmanand:
The CLB held that the appointment of Mr. Parmanand as an additional director was invalid. This decision was not contested further and was upheld by the High Court as well.

4. Removal of Mr. Girdhar Gopal Gupta and Mr. Ram Narain Gupta as Directors:
The removal of these directors was also deemed illegal by the CLB due to the absence of notice for the board meeting. The High Court did not interfere with this finding, considering it an academic exercise since the company was not functioning since 1993, focusing instead on the distribution of assets.

5. Distribution of Assets of the Company:
The High Court emphasized that the primary concern was the distribution of the company's assets, given that the company had ceased operations in 1993. The CLB's findings on the invalidity of certain allotments and directorial changes were seen in light of this broader issue.

Final Judgment:
The Supreme Court dismissed the appeal, noting that the appellants were likely aware of the share allotment due to their involvement in company affairs and representation before various authorities. It was concluded that there was no need for interference under Article 136 of the Constitution, thereby upholding the decisions of the lower courts and the Company Law Board. There was no order as to costs.