1998 (9) TMI 430 - HC - Companies Law

Summary

Issues:
1. Validity of resolution to increase authorized capital and issue of shares.
2. Allegations of oppression against majority shareholders.
3. Applicability of sections 81 and 81(1A) to the appellant-company.

Analysis:
1. The appeal challenged an order setting aside a resolution by the board of directors to increase the authorized capital of the company and the issue of shares, declaring respondents 2 to 4 as majority shareholders. The respondents alleged that the resolution was passed to reduce their majority shareholding and was oppressive. The lower court found the appellant had not followed the provisions of sections 81 and 81(1A) of the Companies Act, leading to the resolution being set aside as oppressive.

2. The appellant denied the allegations, stating that the increase in authorized capital was necessary for business activities and to raise funds. The court noted that the appellant had become a deemed public company at a certain time, and the provisions of sections 81 and 81(1A) applied due to this status change. The court emphasized the need to consider the articles of association to determine the applicability of these sections.

3. Referring to the case of Needle Industries (India) Ltd., the court clarified that a company transitioning from private to public status retains certain characteristics of a private company. The court highlighted that clause (c) of section 81(1) does not apply to companies under section 43A, and sub-section (1A) also does not apply to such companies. The court directed the CLB to reconsider the applicability of sections 81 and 81(1A) to the appellant-company by examining its articles of association, emphasizing the importance of the Needle Industries case.

In conclusion, the impugned order was set aside, and the case was remanded to the CLB for fresh consideration based on the company's articles of association and the principles outlined in the Needle Industries case. The CLB was directed to expedite the decision, considering the prolonged pendency of the matter since 1992. Parties were instructed to appear for further proceedings, ensuring a timely resolution of the issues raised in the appeal.