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IN THE HIGH COURT OF GUJARAT
C.K. THAKKAR, R. BALIA, JJ.
Miheer H. Mafatlal - Appellant
Versus
Mafatlal Industries Ltd. - Respondents
Cross-objection in O.J. Appeal No. 16 of 1994 in Company Petition No. 22 of 1994.
Decided on : 17-07-1996
The court held that the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was contrary to the law and the shares could not have been legitimately participated in the meeting of the shareholders in pursuance of the directions issued by the court. The court also held that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date. Two civil suit were filed in the City Civil Court at Ahmedabad, which were numbered as 3181/87 and 3182/87, by two different shareholders. Before allotment had taken place, the City Civil Court had issued injunction on 4.9.1987 in the following terms: "The defendants are permitted to allot shares to the applicants in the rights issue subject to clear stipulation operating that allotment of shares would be subject to result of this litigation. They are also directed not to allot shares from the un-subscribed portion thereof to anyone except banks and/or public financial institutions without previous permission from this court."
Fact of the Case:
The company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date. Two civil suit were filed in the City Civil Court at Ahmedabad, which were numbered as 3181/87 and 3182/87, by two different shareholders. Before allotment had taken place, the City Civil Court had issued injunction on 4.9.1987 in the following terms: "The defendants are permitted to allot shares to the applicants in the rights issue subject to clear stipulation operating that allotment of shares would be subject to result of this litigation. They are also directed not to allot shares from the un-subscribed portion thereof to anyone except banks and/or public financial institutions without previous permission from this court."
Finding of the Court:
The court held that the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was contrary to the law and the shares could not have been legitimately participated in the meeting of the shareholders in pursuance of the directions issued by the court. The court also held that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date.
Issues: Whether the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was contrary to the law and the shares could not have been legitimately participated in the meeting of the shareholders in pursuance of the directions issued by the court.
Ratio Decidendi: The court held that the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was contrary to the law and the shares could not have been legitimately participated in the meeting of the shareholders in pursuance of the directions issued by the court. The court also held that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date.
Final Decision: The court held that the allotment of shares to NOCIL and Shushrupad in breach of the injunction order was contrary to the law and the shares could not have been legitimately participated in the meeting of the shareholders in pursuance of the directions issued by the court. The court also held that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to be offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date.
JUDGMENT :
R. Balia, J.
The company has preferred cross objection against finding recorded by the learned single Judge that allotment of shares to NOCII. and Shushrupad Investment Ltd. out of rights issue of 1987 was contrary to and in breach of the prohibitory order of injunction issued by the City Civil Court, Ahmedabad, in Suit Nos. 3181/87 and 3182/87 and NOCII, and Shushrupad could not have legitimately participated in respect of those shares in the meeting of the shareholders in pursuance of the directions issued by this court on an application having been made under section 391(1) of the Companies Act though the court ultimately found that even after excluding participation in respect of such unauthorisedly issued shares, the proposed scheme of amalgamation had got approval of requisite majority under section 391(2).
2. Controversy had arisen in the wake of objection raised by the objector appellant that the company had proposed to increase its subscribed capital in the year 1987. The proposed increase was governed under section 81(1) of the Act, that is to say, it was the rights issue which was required to he offered to persons who on the date of offer were shareholders of the company and offer was made in proportion as nearly as circumstances admit to the capital built up of those shares on that date. Two civil suit were filed in the City Civil Court at Ahmedabad, which were numbered as 3181 of 1987 and 3182 of 1987, by two different shareholders. Before allotment had taken place, the City Civil Court had issued injunction on 4.9.1987 in the following terms : "The defendants are permitted to allot shares to the applicants in the rights issue subject to clear stipulation operating that allotment of shares would be subject to result of this litigation. They are also directed not to allot shares from the un-subscribed portion thereof to anyone except banks and/or public financial institutions without previous permission from this court."
3. In view of the operation of the aforesaid order and keeping in view the provision of section 81 of the Act, it had been contended by the objector that the NOCIL was not a shareholder of the W. on the relevant date and, therefore, was not entitled to make any offer of rights issue. Another company Shushrupad was holder of only 563 shares of M11. and was entitled to allotment of only 563 additional shares pursuant to the rights issue and not anything more than that. In the wake of this position, it was contended that allotment of any share to N(X1L and allotment of shares exceeding 563 shares to Shushrupad were contrary to the injunction order operating against the company and, therefore, illegal and, on the strength of such allotment or to the extent of such illegal allotment, the two companies could not have participated in the meeting.
4. It was the case of the company that NOCIL had applied for allotment of 1,50,000 shares on 2.7.1987 for participating in MIL.'s equity shares and Shushrupad had already been shareholder, was eligible to apply for additional shares than to which it was entitled. Both were subscribers to the equity issue of 1987 and there was no violation of order of the court. It was also contended that even if the allotment has been made in violation of the injunction order of the court by the company, it does not affect the validity of allotment and therefore such allottee's cannot be excluded from participation in meeting of the shareholders, though punishment for disobedience of injunction order may be imposed on the company or its officers responsible for breach. Lastly, it was contended that even if such shares are held to be illegally allotted to the above-referred two companies to the extent stated, and they are excluded from the shareholding, the scheme had been approved by the requisite majority.
5. The learned single Judge did not accept the first two contentions. It was held that the defence of the company that the shares allotted to NOCIL and Shushrupad are fro
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