1999 (3) TMI 493 - HC - Companies Law

Summary

Issues Involved:

1. Maintainability of the petition under section 107 of the Companies Act, 1956.
2. Alleged variation of equity shares without notice.
3. Compliance with section 81 of the Companies Act, 1956.
4. Requirement of approval from the Board of Industrial & Finance Reconstruction (BIFR).

Issue-wise Detailed Analysis:

1. Maintainability of the petition under section 107 of the Companies Act, 1956:

The court examined whether the petition filed under section 107 of the Companies Act, 1956 was maintainable. The petitioner contended that the increase in equity shares was illegal and violated the company's constitution and the provisions of the Act. However, the court clarified that issuance of further equity shares does not amount to a variation of the rights of shareholders within the meaning of section 106 of the Act. It was held that a variation affecting the enjoyment of rights without modifying the rights themselves does not constitute a variation under section 106. Therefore, the petition under section 107 was deemed not maintainable.

2. Alleged variation of equity shares without notice:

The petitioner argued that the increase in the number of equity shares from 1,50,000 to 2,30,500 was done without his knowledge or notice, which he claimed was illegal. The court observed that the increase in shares was decided through a special resolution passed at an extraordinary meeting of the members on 10-11-1998. The Board of Directors subsequently allotted 80,500 shares to Sanjay Jain in lieu of an unsecured loan. The court found that the petitioner's father, who was the chairman of the meeting, was aware of the decision, and thus, the claim of lack of notice was unfounded.

3. Compliance with section 81 of the Companies Act, 1956:

The petitioner claimed that the allotment of shares to Sanjay Jain deprived him of his right to receive a proportionate share, violating section 81(1) of the Act. However, the court noted that section 81(1A) permits the allotment of shares to any person if a special resolution is passed. In this case, such a resolution was adopted on 10-11-1998, making the allotment valid. The court also found that the petitioner had notice of the meeting but chose not to participate.

4. Requirement of approval from the Board of Industrial & Finance Reconstruction (BIFR):

The petitioner contended that the resolution to allot shares required BIFR approval as the company was under a rehabilitation scheme. The court examined section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and concluded that BIFR approval was necessary only if the management of the company was taken over or changed under a sanctioned scheme. Since there was no evidence of such a change in management, the approval from BIFR was not required for the resolution.

Conclusion:

The court dismissed the petition, finding it not maintainable and lacking bona fide intent. The petitioner had suppressed material facts and attempted to obstruct the company's efforts to raise further capital as required by the rehabilitation package. The interim stay granted on 2-2-1999 was vacated.

Final Order:

The company petition was dismissed, and the interim stay was vacated.