Was the issue of 15,000 shares and allotment of 6,475 shares valid?

Yes, the broad-basing by issuing 15,000 shares and allotting 6,475 to the appellants stood; the respondent had admitted it and could not later dispute it.

Were any allotments struck down?

Yes. Allotment of 3,000 shares to the appellants and 500 shares to Respondent No. 12, out of 8,000 shares allotted to FRG, was held invalid.

Was oppression proved under Section 397?

No act of oppression against the appellants was proved. Transfer of 9,415 shares to Indreni was also not oppression by itself.

Which law governs oppression remedies here?

Section 397 (now Section 241 of the Companies Act) provides relief where affairs are conducted oppressively; members may apply subject to Section 399.

Sangramsinh P. Gaekwad & Ors v. Shantadevi P. Gaekwad

Q: Did the appellant have a fiduciary duty to inform about the share offer?

No. The Supreme Court held there was no fiduciary duty on the appellants to inform the respondent about opting for the allotment.

Sangramsinh P. Gaekwad & Ors v. Shantadevi P. Gaekwad (2005)

Easy classroom-style explainer on oppression under Section 397, validity of share allotment, and fiduciary duty to inform.

Supreme Court of India 2005 AIR 2005 SC 809 Company Law Reading Time: ~7 min Author: Gulzar Hashmi India

Quick Summary

Gaekwad Investment Corporation faced losses and cash stress. To raise money, the Board decided to issue new shares and broad-base ownership. Disputes followed over who got how many shares and whether someone should have been told to opt in. The Supreme Court held: no fiduciary duty on the appellants to inform the respondent to take the offer; the issue of 15,000 shares and allotment of 6,475 to appellants stood (as admitted earlier). However, a later 3,000 + 500 allotment was invalid. No oppression was proved; transfer of 9,415 shares to Indreni was not oppressive by itself.

Issues

Did the appellants owe a fiduciary duty to inform the respondent about the benefit of opting for the share allotment?
Was the issue of 15,000 shares and allotment of 6,475 shares to the appellants valid?
Was there any oppression under Section 397 made out on the facts?

Rules

Section 397 (Companies Act, 1956): Members may apply if the company’s affairs are run in an oppressive manner or against public interest, subject to the Section 399 threshold.

Fiduciary duty to inform: Directors/promoters do not automatically owe a duty to alert a member to take up an offer, unless special facts create such duty.

Estoppel / admissions: A party who admits a valid broad-basing/allotment cannot later turn around to challenge its correctness.

Facts (Timeline)

Timeline: losses, capital raise, meetings, litigation

Losses: GIC suffered losses (FY ending 31 Mar 1987 & 31 Mar 1988). Equity and reserves were hit; loans could not be serviced.

Cash Crunch: BRC (another Gaekwad company) skipped dividend in 1986–87; BRC’s share value fell; overdraft access weakened.

Broad-basing Plan: Board decided to widen membership and raise funds; EGM called; proposal to issue 25,000 shares of ₹100 each.

Board (8 Jan 1988): Resolved to issue 15,000 shares at par to members.

AGM: Resolutions favoring Appellant No. 1 and his group were rejected; voting for appellants was confined to 66 shares; 9,415 shares said to be acquired by Indreni not counted.

Litigation: FIR lodged by appellant before AGM; respondent filed petition under Sections 397/398 before the High Court.

Arguments

Appellants

No special fiduciary duty to inform the respondent about opting in.
15,000 issue and 6,475 allotment were proper; respondent admitted broad-basing.
No oppression; transfer of 9,415 shares to Indreni was a legitimate transaction.

Respondent

Non-disclosure about benefits of allotment was unfair.
Allotments favored the appellants and diluted others unlawfully.
Conduct amounted to oppression under Section 397.

Judgment

No fiduciary duty to inform: Appellants were not bound to alert respondents about the benefits of opting for allotment.
Valid: Broad-basing by issuing 15,000 shares and 6,475 shares to appellants stood (respondent had admitted).
Invalid: Allotment of 3,000 shares to appellants and 500 to Respondent No. 12 (out of 8,000 to FRG) was bad in law.
No oppression proved; transfer of 9,415 shares to Indreni was not oppressive by itself.

Ratio

Oppression needs proof of unfair conduct that burdens a member in a manner contrary to fair dealing and company standards; mere disputes on allotment, without more, are insufficient.

No automatic duty to advise another member to take up shares; and admissions about broad-basing can estop later challenges.

Why It Matters

Clarifies what oppression is—and is not—under Section 397.
Guides boards on capital raising in distress: process and disclosures.
Highlights the importance of admissions in pleadings about corporate actions.

Key Takeaways

No automatic fiduciary duty to inform other members about opting into allotments.

Broad-basing can be valid when duly resolved and admitted.

Some targeted allotments may be struck down if unlawful.

Mnemonic + 3-Step Hook

Mnemonic: “BID — Broad-base, Inform? Don’t (automatic), Don’t Oppress”

Broad-base: Fresh issue to stabilize finances can be valid.
Inform? No automatic fiduciary duty to nudge others to opt in.
Don’t Oppress: Need clear proof of oppressive conduct.

IRAC Outline

Issue: (1) Duty to inform about allotment? (2) Validity of 15,000 issue & 6,475 allotment? (3) Oppression?

Rule: Section 397/399; fiduciary duties arise on special facts; admissions bind.

Application: Respondent admitted broad-basing; no special duty to inform; but 3,000 + 500 allotment (out of 8,000 to FRG) invalid; no oppressive pattern proved; Indreni transfer not oppressive per se.

Conclusion: No fiduciary duty; core issue/allotment valid; partial allotment invalid; oppression not made out.

Glossary

Oppression (S.397): Conduct that is burdensome, harsh, and wrongful to a member’s interests.
Broad-basing: Widening shareholding by issuing new shares to raise funds and dilute concentration.
Fiduciary Duty: Duties of loyalty/good faith; here, no automatic duty to advise another member to subscribe.
Estoppel by Admission: A party who has admitted a fact/action may be prevented from later denying it.

FAQs

No. The Court said there was no fiduciary duty to inform in these facts.

Mostly yes. The 15,000 issue and 6,475 allotment stood. But a later 3,000 + 500 allotment was invalid.

No. The respondent could not establish oppressive conduct. The Indreni transfer was not oppressive by itself.

Boards can raise capital by broad-basing if procedures are followed. Claims of oppression need clear evidence, not just disagreement over allotment.