The court clarified the legal provisions under the Companies Act, particularly Sections 78, 100, and 101, and their application to the proposed rights issue and expenditure by the plaintiff.

S.RAVINDRA BHAT, J.

1. This order will dispose of the Defendant Nos 1, 2, 4 and 7’s (hereafter called “the applicants”) temporary injunction application, (IA 9920/09) seeking a restraint upon the plaintiff’s going ahead with its proposed rights issue, whereby it intends to offer 1,50,30,003 shares of the face value of Rs. 10, at a premium of Rs. 30, thus proposing to realize Rs. 60 crores.

2. The facts necessary to decide the case are that HQRL Pvt. Ltd. (hereafter “HQRL”) was incorporated as a special purpose vehicle (SPV) in August, 2001, with the intention, of taking over assets of, and managing, the Hotel Ashok Yatri Niwas as a part of the disinvestment scheme. This was effectuated by a Scheme of “Arrangement of Demerger” (sanctioned by the Central Government on 5th July, 2002) between India Tourism Development Corporation [ITDC] (of which Hotel Ashok Yatri Niwas was a unit) and HQRL.

3. The Central Government later invited bids for the purchase of 99.97% of the total voting equity share capital of HQRL; Moral Trading and Investment Ltd. (“Moral”) met the parameters of the bid. The shares in HQRL were sold to it through two share purchase agreements dated 8th October, 2002. Those agreements were entered into between the President of India, Moral, and HQRL. On the same date, an agreement was entered into between the President of India and HQRL, by which the plot of land where Hotel Ashok Yatri Niwas stood was leased to HQRL, for 99 years. In addition, a meeting of the Board of Directors of HQRL took place in which Mr. Ashwini Kumar Lohani and Mr. Samar Kumar Bandopadhya resigned as directors and Mr. Ram Parshotam Mittal, Mr. Ashok Mittal, Mrs. Sarla Mittal and Mr. C.S. Paintal were appointed as additional directors.

4. In December, 2002 HQRL approved the transfer of one share from Moral Trading and Investment Ltd. to Mr. Ashok Mittal and two shares to Mr. Ram Parshotam Mittal. Their appointment (along with that of Mrs. Sarla Mittal) was approved in the Board of Directors of HQRL. It was resolved to increase the capital of HQRL from Rs. 90 lakhs to Rs. 33 crores. The additional capital was divided into 71 lakh equity shares of Rs. 10/- each and 25 lakh preference shares of Rs. 100/- each. The Articles of Association of HQRL Pvt. Ltd. were amended to state that preference shares would not carry any voting rights. Hill Crest Realty (a Malaysian company) purchased 23,65,000 redeemable preference shares from HQRL bearing interest at 8.5% per annum. The Board of Directors of HQRL approved the allotment on 5th May, 2003 subject to the condition that the allotment did not carry any voting rights. This was followed (in July 2003) by a further purchase of 4,64,290 preference shares by Hill Crest Realty on similar terms.

5. In June, 2005 Hill Crest Realty served a notice on HQRL to hold an EGM to remove Mr. Ram Parshotam Mittal and Mrs. Sarla Mittal as directors of HQRL and instead to appoint the nominees of Hill Crest Realty. In response, HQRL declined to hold the EGM, inter alia, on the ground that the notice was illegal. This led Hill Crest Realty to issue another notice to HQRL purporting to hold an EGM on 4th August, 2005 for the same purpose as above. The notice sent by Hill Crest Realty led HQRL to file Suit No. 992 of 2005 on the file of this Court, for injunction to restrain Hill Crest Realty from going ahead with the proposed meeting and exercising voting rights in the proposed meeting. By an order dated 12th August, 2005 a learned Single Judge of the court held that the requisition for an EGM by Hill Crest Realty was illegal and so, any resolution passed in that meeting was ineffective. Among the important conclusions arrived at by the learned Single Judge was that HQRL is a private limited company and that Hill Crest Realty had no voting rights in the EGM. Hill Crest Realty appealed against this decision, being FAO (OS) No. 282 of 2005 before the Division Bench.

6. In August, 2008 Hill Crest Realty alleged about it