1995 (9) TMI 227 - HC - Companies Law

Share capital - Further issue of, Meetings and proceedings Demand for poll, Oppression and mismanagement, Meetings and proceedings - Proxies

Summary

Issues Involved:
1. Legality of the notice calling for the 25th annual general meeting.
2. Implementation of resolutions Nos. 10, 11, and 12.
3. Allegations of oppression and mismanagement.
4. Validity of the adjournment of the meeting.
5. Deployment of funds for the beer project.
6. Preferential allotment of shares to non-resident Indians and overseas corporate bodies.
7. Approval and implementation of resolutions by shareholders.

Issue-wise Detailed Analysis:

1. Legality of the Notice Calling for the 25th Annual General Meeting:
The appellants challenged the legality of the notice issued for the 25th annual general meeting scheduled for September 12, 1994, arguing that the notice was illegal, void, and unenforceable. The court found that the respondents had given an undertaking to defer the consideration of resolutions Nos. 10, 11, and 12 until further orders, allowing the meeting to proceed with other resolutions. The Supreme Court permitted the meeting to take place but directed that the results of the voting on the disputed resolutions be kept confidential until further orders.

2. Implementation of Resolutions Nos. 10, 11, and 12:
The appellants sought to restrain the implementation of these resolutions. Resolution No. 10 pertained to the utilization of proceeds from a rights issue for a beer project. Resolution No. 11 involved the issuance of shares to non-resident Indians and overseas corporate bodies. Resolution No. 12 aimed to increase the stake of existing promoters. The court found that the resolutions were passed with overwhelming support from shareholders, including financial institutions holding substantial stakes in the company.

3. Allegations of Oppression and Mismanagement:
The appellants alleged acts of oppression and mismanagement by the respondents, including attempts to rectify the share register to exclude the appellants. The court noted that the Company Law Board and the Central Government were already investigating these allegations. The court held that the pendency of these proceedings could not stall the implementation of the resolutions.

4. Validity of the Adjournment of the Meeting:
The appellants contended that the adjournment of the meeting for consideration of resolution No. 12 was illegal as it was done without a proper motion or consent of the shareholders. The court found that the proceedings of the meetings were duly recorded, and the appellants had not raised any objections to the minutes. The court upheld the validity of the adjournment and the subsequent meeting held on March 20, 1995.

5. Deployment of Funds for the Beer Project:
The appellants argued that funds earmarked for other projects were diverted for the beer project without shareholder approval. The court found that the beer project had been approved by the lead institution (ICICI), debenture holders, and the shareholders. The court noted that the project was already in progress, and substantial sums had been invested. The court rejected the appellants' request to keep the funds in a separate bank account.

6. Preferential Allotment of Shares to Non-resident Indians and Overseas Corporate Bodies:
The appellants argued that private placements in a rights issue were contrary to the guidelines issued by the Securities and Exchange Board of India (SEBI). The court found that the SEBI had permitted the company to determine the terms of the issue, including pricing, after obtaining shareholder consent. The court noted that the shares were allotted at a high price, benefiting the company and its members.

7. Approval and Implementation of Resolutions by Shareholders:
The court emphasized the importance of corporate democracy and the role of shareholders in managing the company's affairs. The court found that the resolutions were passed with overwhelming support from shareholders, including financial institutions. The court held that it was not for the court to interfere with the decisions of the shareholders, especially when the appellants had participated in the meetings and failed to convince the majority.

Conclusion:
The court dismissed all the appeals, upholding the validity and implementation of resolutions Nos. 10, 11, and 12. The court emphasized the principles of corporate democracy and the role of shareholders in managing the company's affairs. The court found that the appellants had not established a prima facie case for the grant of injunction and that the balance of convenience lay in favor of the respondents. The court held that the implementation of the resolutions was essential for the company's progress and development.