Share Capital Increase Without Notice To Family Shareholders Amounted To Oppression In Daruka Papers Case: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that increasing the authorised share capital and issuing rights shares without notice to continuing shareholders in a closely-held family company amounted to oppression, after finding that the company proceeded on the assumption that certain shareholders had resigned even though the validity of their resignation itself was disputed.

Disposing of the appeal in a dispute concerning J.B. Daruka Papers Ltd, a bench of Judicial Member Justice Yogesh Khanna and Technical Member Ajai Das Mehrotra observed:

“No notice for increase in the authorized share capital was ever given to Respondents No.2 to 7 upon the allegation that they had resigned as directors. This was nothing but oppression of the Respondents.”

The appeal was filed by Suresh Kumar Agarwal and others against the order dated September 30, 2025, passed by the NCLT Allahabad, which had restored certain directors and appointed an administrator to run the company amid a long-standing family dispute over control of the closely held company.

The dispute arose between three branches of the family managing the company , the Vishwanath group (appellants), the Jagdish group, and the Shambhoo Nath group (respondents).

According to the appellants, disputes in 2008 were resolved through an oral family settlement mediated by their paternal uncle Murari Lal Mathahelia, under which the company was to go to the highest bidder among the three groups.

The Visgwanath's claimed they became the highest bidders and that the respondents submitted resignation letters which were handed over to the mediator and later allegedly deposited with the Registrar of Companies.

They contended that part of the consideration was paid by cheque and the balance in cash, relying on an affidavit of a family member. They argued that the respondents had agreed to exit the company and that any dispute regarding the remaining payment was a civil dispute beyond the jurisdiction of the company tribunal.

The respondents denied receiving any cash payment and alleged that the resignation letters and settlement documents were forged. They also pointed out that despite directions of the Company Law Board, the originals of the resignation letters were never produced.

The further contended that the alleged settlement was never implemented, particularly in respect of the Shambhoo Nath group, which received no payment and whose personal guarantees to banks continued till 2023.

They also challenged the increase in authorised share capital from Rs 4 crore to Rs 7 crore and the rights issue brought thereafter without notice to them, even though they continued to remain shareholders.

The appellate tribunal noted that the terms of the alleged settlement were never fully complied with and that even the admitted payments were incomplete, while no proof of the alleged cash payment was produced before it.

It further held that the company had proceeded to increase the authorised capital and bring a rights issue without informing the respondents despite the dispute regarding their resignation and earlier proceedings before the Company Law Board, which justified the finding of oppression and the appointment of an administrator.

While upholding the appointment of an Administrator, the NCLAT modified the order to allow forensic examination of receipts for the alleged cash payment claimed to have been made under the disputed family settlement, if produced and disputed.

Accordingly, the appeal was disposed of with the above modification, and no further relief was granted.