Case: Girdhar Gopal Gupta  Vs. Aar Gee Board Mills Pvt.Ltd.

the respondents intimating about the issuance of shares. Since there was no satisfactory reply, petition under sections 397 and 398 of the Act was filed. 11. So far as the receipt of share application money is concerned the Balance Sheet only shows that it was under the head of `share application money and there was no allotment. 12. In response, learned counsel for the respondents submitted that the case of the appellants before the Board was that the respondents have raised the share capital of Rs.3,94,320/- by allotting 3943 shares at Rs.100/- each on 25.6.1994, 20.10.1994 and 9.1.1995 without issuing notice of such meetings to the appellants. It is pointed out that admittedly the meetings were held at the registered office of the company i.e. the residence of the appellants and as such allotments made by the respondents lead to an act of oppression under Section 398 of the Act. It is pointed out that the totally a new case is presented before this Court that no meeting for allotment of alleged equity shares were ever held and the share application money reflected in the Balance Sheet ending on 31.3.1994 cannot be converted into share capital and therefore the allotment is bad under Section 286 of the Act admittedly, when the quorum of Directors was duly empowered to do so. Moreover, both the Directors were signatories of the Memorandum and Articles of Association of the Company. It is pointed out that undisputed facts are as under: 13. The registered office of respondents 1 and 2 was at 73, Gujarawala Town, Part-II, G.T. Karnal Road, Delhi which is the residence of the appellants. All the Boards meetings were held and resolutions therein were passed at the same registered office. Moreover, all the statutory records were kept at the registered office as mandated by Sections 193, 196(1), 303 (1), 307(5) and 209 of the Act. The company was passing through financial crises and there was need to meet the government dues and installation of an effluent treatment plant in view of the directions of this Court. The quorum under the Articles of Association was two Directors as per Clause 33 of the Article of Association. Two persons were present in the meeting. The Board of Directors allotted 3943 equity shares when the requisite quorum of two Directors of the respondent group was there. In the meetings held on 25.6.1994, 20.10.1994 and 9.1.1995 at the registered office as per Clause 33 of the Articles of Association as well as under Section 287 of the Act. Auditor was appointed under Section 224 and power of attorney was signed by appellant No.1 on 4.9.1995 for which meeting was held and Balance Sheet as on 31.3.1995 was audited by the auditor on 4.9.1995 under Section 215 of the Act. Significantly, no mala fides have been imputed on the part of the auditor and no allegations of fraud or mala fide intention were imputed upon the respondents before the Board, learned Single Judge and not even before this Court. 14. There is no dispute that the Balance Sheet as on 31.3.1994 was duly signed by appellant No.1 and share application money amounting to Rs.3,94,320/- was reflected as share application money in the Balance Sheet with mutual understanding that the same was to be treated as share capital in next financial year ending on 31.3.1995.15. To give effect to the understanding, the same was converted on 25.6.1994, 20.10.1994 and 9.1.1995. Resolution dated 21.4.1997 was passed and signed by appellant No.1 authorising respondent No.2 for getting sales tax and income tax assessment completed. In the sales tax assessment proceedings appellant No.1 was representing the company. The Balance Sheet was filed at that time before the Assessing authority. An order dated 16.6.1998 for the assessment year 1994-95 clearly disclosed that appellant No.1 had appeared before the Sales Tax Authority on 3.6.1998 and produced records of the company. Thus, the Balance Sheet of the company as on 31.3.1995 was available with appellant No.1 and produced before the Sales Tax Authority. Therefore, the claim of the ignorance of the records by the appellants is wrong.16. It is pointed out that because of rising prices of estates of the company the petition under Sections 397 and 398 of the Act was filed on 20.10.2001. However, the returns for allotment of 9507 shares including 3943 shares were filed before the Registrar of Companies on 20.8.1998.17. It is submitted that the plea relating to Section 286 is not available in the present case as meeting admittedly held and the proof of service of notice was in the possession of the appellants as part of statutory record. Even after the meeting on 4.9.1995 wherein auditors were appointed the earlier meetings of the board are ratified and the appellants cannot question that. If the appellants claim is accepted it is inconceivable as to how share application money shown has been utilized in the subsequent years and as to how they were reflected in the Balance Sheet.18. So far as the other submissions relating to records manipulations it is submitted that this is not a case where jurisdiction under Article 136 of the Constitution should be exercised.19. We find that 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 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]14. There is no dispute that the Balance Sheet as on 31.3.1994 was duly signed by appellant No.1 and share application money amounting to Rs.3,94,320/- was reflected as share application money in the Balance Sheet with mutual understanding that the same was to be treated as share capital in next financial year ending on 31.3.1995.15. To give effect to the understanding, the same was converted on 25.6.1994, 20.10.1994 and 9.1.1995. Resolution dated 21.4.1997 was passed and signed by appellant No.1 authorising respondent No.2 for getting sales tax and income tax assessment completed. In the sales tax assessment proceedings appellant No.1 was representing the company. The Balance Sheet was filed at that time before the Assessing authority. An order dated 16.6.1998 for the assessment year 1994-95 clearly disclosed that appellant No.1 had appeared before the Sales Tax Authority on 3.6.1998 and produced records of the company. Thus, the Balance Sheet of the company as on 31.3.1995 was available with appellant No.1 and produced before the Sales Tax Authority. Therefore, the claim of the ignorance of the records by the appellants is wrong.16. It is pointed out that because of rising prices of estates of the company the petition under Sections 397 and 398 of the Act was filed on 20.10.2001. However, the returns for allotment of 9507 shares including 3943 shares were filed before the Registrar of Companies on 20.8.1998.17. It is submitted that the plea relating to Section 286 is not available in the present case as meeting admittedly held and the proof of service of notice was in the possession of the appellants as part of statutory record. Even after the meeting on 4.9.1995 wherein auditors were appointed the earlier meetings of the board are ratified and the appellants cannot question that. If the appellants claim is accepted it is inconceivable as to how share application money shown has been utilized in the subsequent years and as to how they were reflected in the Balance Sheet.18. So far as the other submissions relating to records manipulations it is submitted that this is not a case where jurisdiction under Article 136 of the Constitution should be exercised.19. We find that 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 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.