IMPORTANT POINT
Authorised Capital cannot be increased by Board of Directors – It is out of Authorised Capital that a company issues shares – It then becomes Issued Capital – Whatever is issued, need not be subscribed to.

JUDGMENT

K.M. Joseph, J.

1. The first respondent is a private limited company. It can also be described as a closely held private limited company. The authorised capital of the first respondent was Rs.1 crore. It consisted of ten lakh equity shares of Rs.10/- each. The paid-up capital was also the same. There are three groups. Appellants 1 and 2, together and relatives can be described as the H.M. Patel Group. They had 30.80 percentage of the paid-up share capital. The next Group to be noticed is the Sheth Group which is represented by Respondents 4 and 5, viz., Kirti Kumar Ochachhavlal Sheth and Ashwinikumar Kirtikumar Ochachhavlal Sheth (hereinafter referred to as, ‘the Sheth Group’, for short). The Sheth Group had 45 per cent share in the paid-up capital. The third Group is represented by Respondents 2 and 3, viz., Manish Vipinchandra Patel and Krunal Vipinchandra Patel. They had 24.20 percentage of the paid-up share capital. They are referred to hereinafter as the ‘V.P. Patel Group’.

2. The V.P. Patel Group filed T.P. 197 of 2016 (C.A. 16 of 2012) whereas the Sheth Group filed T.P. 10 of 2016 (C.P. 86 of 2010). The first respondent is the company. Respondents 2 and 3, in both the petitions, are the appellants before us. The V.P. Patel Group and the Sheth Group, through the aforesaid Petitions, purported to project a case of mismanagement and oppression by the appellants in the Petitions styled under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as ‘the Act’, for short). By Order dated 17.05.2017, the NCLT, Ahmedabad Bench disposed of the petitions with the following directions:

“92. In this set of facts, it is not just and equitable to order winding up of the company. If the company Is to be wound up it is not in the interest of the company or and it is not in the interest of the three groups of shareholders. Therefore, this Tribunal is of the view that it is just and expedient to give following directions/ orders in this matter: -

(a) In view of the findings on point No. 3 it is held that increase in the authorised share capital of company from rupees one crore to two crores is valid and binding on all the shareholders. However, the allotment of shares in respect of increased share capital shall be made to all the existing shareholders of the Company as on 18.12.2009 in proportion to their shareholding. In case if any shareholder is not willing to subscribe for additional shares, then those shares shall be allotted to other shareholders taking their options again proportionate to their shareholding.

(b) In view of findings on point No. 4, the removal of respondents 2 and 3 as directors of the company is not valid.

(c) In view of finding on point No. S, this Tribunal direct that there shall be audit of accounts of the company from the financial year 2009-20l0 and determine what are the amounts siphoned by each petitioners and respondents 2 to 5 and place the report before the General Body of the company duly convening Extra Ordinary General Meeting. The company is directed to take steps for recovery of such amounts from the concerned persons.

(d) Mis. A.R. Sulakhe & Co., 515, Loha Bhavan, Opp. Old High Court, Near Income Tax Circle, Ashram Road, Ahmedabad 380009 is appointed as auditors for the purpose auditing accounts of the company as directed above. The Auditors shall file report before this Tribunal within two months from the date of this order serving copy to the company and its directors. Fee of the auditors is tentatively fixed at Rs. 50,000/- (Rupees fifty thou sand only). The auditors are at liberty to ask for further remuneration depending on work load.

(e) This Tribunal direct the Independent Valuer to determine the fair value of the shares of the first respondent company as on the date of filing (CP 85/2010) TP 10/2016.

(f) A.S. Gupta & Co., 203/1 New Cloth Market, 1st Floor, Outside Rai