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IN THE HIGH COURT OF ALLAHABAD
G. P. Mathur and R. P. Misra, JJ.
GREENFIELD CORPORATION LTD. - Appellant
Versus
U. P. FINANCIAL CORPORATION - Respondents
C. M. W. P. 16627 Of 2001
Decided On : 05/14/2002
Agreement - Company Law - Section 77 of the Indian Companies Act - Summary of Acts and Sections: Section 77 of the Companies Act - The court discussed the provisions of Section 77 of the Companies Act, which prohibits a company from buying back its own shares without the requisite sanction. The court analyzed the agreement dated 3. 4. 1996, which was described as an 'agreement to buy-back shares' and was unilaterally executed by the petitioners. The court highlighted the voluntary nature of the agreement and the absence of coercion by the U. P. F. C. The court emphasized that the contravention of Section 77 was committed by the company itself and its officers, not by the U. P. F. C. The court also noted that the petitioners sought to declare the agreement void after it had been acted upon by the U. P. F. C., and the agreement had exhausted itself. The court concluded that the relief sought by the petitioners for the refund of the amount deducted by the U. P. F. C. could not be accepted.
Fact of the Case:
The petitioners, a public limited company and its Managing Director, entered into an agreement with the Uttar Pradesh Financial Corporation (U. P. F. C.) to purchase equity shares and subsequently sought loans from the U. P. F. C. The petitioners contended that the agreement contravened Section 77 of the Indian Companies Act and sought a refund of the amount deducted by the U. P. F. C. from the sanctioned loan.
Finding of the Court:
The court found that the agreement was voluntarily executed by the petitioners and highlighted the absence of coercion by the U. P. F. C. The court emphasized that the contravention of Section 77 was committed by the company itself and its officers, not by the U. P. F. C. The court concluded that the relief sought by the petitioners for the refund of the amount deducted by the U. P. F. C. could not be accepted.
Issues: The main issue was whether the agreement contravened Section 77 of the Indian Companies Act and whether the petitioners were entitled to a refund of the amount deducted by the U. P. F. C.
Ratio Decidendi: The court held that the contravention of Section 77 was committed by the company itself and its officers, not by the U. P. F. C. The court emphasized the voluntary nature of the agreement and the absence of coercion by the U. P. F. C. The court concluded that the relief sought by the petitioners for the refund of the amount deducted by the U. P. F. C. could not be accepted.
Final Decision: The court dismissed the writ petitions, finding no merit in the relief sought by the petitioners.
( 1 ) THE prayers made in the first writ petition are for issuing a writ of certiorari to quash the agreement dated 3. 4. 1996 and for issuing a writ of mandamus commanding the Uttar Pradesh financial Corporation to refund Rs. 20,65,279. 89 along with the interest to the petitioner. The prayer made in the second writ petition is that the order dated 20. 4. 2001 passed by the Regional manager. Uttar Pradesh Financial Corporation, Meerut be quashed and the respondents be restrained from Initiating any recovery proceedings against the petitioners. The controversy involved in both the writ petitions is interconnected and, therefore, they are being disposed of by a common order.
( 2 ) THE case set up in Writ Petition No. 21789 of 1999 is as follows : the petitioner No. 1 M/s. Greenfield Corporation Ltd. , is a public limited company and the petitioner No. 2 Sri Sunil Dublish is the Managing Director of the company. The petitioner No. 1 took loan from the Uttar Pradesh Financial Corporation (hereinafter referred to as the U. P. F. C. ). An agreement was executed by petitioner No. 1 on 3. 4. 1996 whereunder the U. P. F. C. purchased 1. 50,000 equity shares of face value of Rs. 10 of petitioner No. 1. It was also agreed by petitioner No. 1 that it shall buy back 75,000 equity shares within six months of the Investment in the issue at a price of Rs. 11. 80 per share and the remaining 75,000 equity shares within six to twelve months of the Investment in the issue at a price of Rs. 13. 60 per share. The agreement provided that the U. P. F. C. shall also have the right to off-load the equity shares in phased manner in open market. In pursuance of the agreement, the U. P. F. C. made an application on 8. 4. 1996 for purchase of 1,50,000 equity shares along with a bank draft of Rs. 15 lakhs. The petitioner company approached the U. P. F. C. for grant of working capital term loan of Rs. 35 lakhs and Brand Equity Loan of Rs. 20 lakhs in March. 1997. The request of the petitioner was accepted and the U. P. F. C. agreed to grant the aforesaid loans. After sanctioning the two loans, the U. P. F. C. issued a cheque for Rs. 14,34,720. 12 only as an amount of Rs. 20,44,279. 89 was deducted towards buy back of shares in accordance with agreement dated 3. 4. 1996, a sum of Rs. 15. 600 towards incidental expenses and a sum of Rs. 3,500 towards L. R. Account were also deducted and in this manner Rs. 20,65,279. 89 was deducted from out of the sanctioned loan of rs. 35 lakhs. The petitioners contend that the agreement dated 3. 4. 1996 contravenes Section 77 of the Indian Companies Act and consequently, the same was not enforceable and, therefore, the u. P. F. C. is not entitled to deduct any amount from the sanctioned loan of Rs. 35 lakhs and the amount of Rs. 20,65,279. 89 deducted by it should be refunded to the petitioner.
( 3 ) THE stand of U. P. F. C. in the counter-affidavit filed by it is that the petitioner No. 1 was initially a private limited company which became a pubic limited company on 12. 6. 1995 and it came out with a public issue sometimes in February, 1996. The petitioners vide their letter dated 5. 2. 1996 requested U. P. F. C. to purchase 1. 50,000 equity shares of petitioner No. 1 having the face value of Rs. 10 on the terms and conditions which may be mutually agreed upon. The matter was personally discussed by the petitioner No. 2 with the officers of U. P. F. C. and it was agreed that in case of failure of petitioner No. 1 to repurchase the shares within the time specified in the agreement, the repayment of the petitioner towards principal and interest shall be first adjudged towards buy back of equity shares- It was the petitioners who induced U. P. F. C. to purchase the shares of petitioner No. 1 by assuring that the annualised return on the shares would be 36% and by promising that within the specified period, the petitioners would repurchase the shares. It is averred in para 15 of the counter-affidavit that aft
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