TIN PLATE DEALERS ASSOCIATION PVT. LTD. & ORS. versus SATISH CHANDRA SANWALKA & ORS.
[2016] 8 S.C.R. 145, Supreme Court of India, 2016
Outcome: Disposed off
Segment: Ratio
[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 
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 
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 
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-
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 
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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SUPREME COURT REPORTS 
[2016] 8 S.C.R. 
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 
under the Act would require incorporation in the Articles of a 
company. 
Company Law: 
Issue of ordinary equity shares - Held: Power of the Board 
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) 
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 
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 
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 
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
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 
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 
B 
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 
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 
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 
E 
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to be answered in favour of the respondent-Sanwalka Group. 
[Paras 15, 18][157-F-H; 158-A] 
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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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[2016] 8 S.C.R. 
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 
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 
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 & 
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, 
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, 
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 
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 
Industries Newey (India) Holding Ltd. & Ors. (1981) 3
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
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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 
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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 
is difficult to accept. Neither is the period during
which dividends 
had not been paid is specified, nor is the amount due indicated. 
E 
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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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 
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 
2005 (2) SCR 1063 
1981 (3) SCR 698 
relied on 
relied on 
relied on 
Para20 
Para 20 
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. 
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, 
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 
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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 
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 
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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 
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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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[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 
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 
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 
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 
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; 
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(4) cancellation of3065 equity shares to the holders of the 
3065 preference shares; 
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(5) cancellation of the lease agreement in respect of the 
industrial plot and 
( 6) restoration of the names of the concerned members of 
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,
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
according to the Gupta Group, was in the following circumstances. 
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 
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. 
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 
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 
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 
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, 
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. 
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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 
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 
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 
Articles of Association 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 
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 
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 
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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 
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question as to whether the said shares did exist at all or stood extinguished 
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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 
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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 
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; 
(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; 
(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. 
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13. We have heard Shri Arvind P. Datar learned senior counsel 
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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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SUPREME COURT REPORTS 
[2016) 8 S.C.R. 
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 
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 
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 
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 
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. 
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 
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
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
may also write in any such notice that in the event of failure 
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 
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 
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 
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 
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." 
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 
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 
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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 
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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. 
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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 
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. 
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 
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.
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
20. Specifically, so far as the issue of bonus shares is concerned, 
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 
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/ 
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 
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, 
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 
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 
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 
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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 
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 
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 
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 
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. 
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 
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 
'(1981) 3 sec 333
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
the balance would still tilt in favour of the Gupta Group. 
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 
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. 
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 
(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. 
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. 
(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 : 
(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 
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(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 
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 
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 
(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 
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." 
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. 
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 
regards dividends, voting rights and redemption -
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
(a) Preference shares shall carry a fixed cumulative free 
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 
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 
(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 
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 
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 
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 
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 
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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 
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. 
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 
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dealt with in the future in accordance with law. This is, of course, subject 
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 
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 
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 1 OF 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
TIN PLATE DEALERS ASSOCIATION PVT. LTD. v. SATISH 
CHANDRA SANWALKA [RANJAN GOGOi, J.] 
being in the best interest of the Company, no case for winding up is 
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 
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. 
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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. 
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. 
Ankil Gyan 
Appeals disposed of. 
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