2000 (2) TMI 783 - HC - Companies Law

Summary

Issues Involved:
1. Validity of condition No. 2 imposed by the Company Law Board regarding the issuance of further redeemable preference shares.
2. Jurisdiction and power of the Company Law Board under Section 80A of the Companies Act, 1956.
3. Estoppel against the appellant from challenging the condition after conceding to the demand for higher dividend.

Detailed Analysis:

1. Validity of Condition No. 2 Imposed by the Company Law Board:
The appellant challenged condition No. 2 of the Company Law Board's order, which mandated that the new redeemable cumulative preference shares carry a dividend rate of 15% per annum. The appellant argued that under Section 80A, the Board lacked the authority to impose such a condition. However, the court found that the imposition of this condition was justified and equitable. The court noted that the appellant, unable to redeem the shares on the due date, sought to issue new shares and thus continued to utilize shareholders' money for business operations. Given this context, the court held that the condition regarding the 15% dividend rate was neither arbitrary nor unreasonable.

2. Jurisdiction and Power of the Company Law Board under Section 80A:
The court examined Sections 80 and 80A of the Companies Act, 1956. Section 80 allows companies to issue redeemable preference shares with certain restrictions, while Section 80A, introduced by the Companies (Amendment) Act, 1988, provides for the redemption of irredeemable preference shares and those not redeemable before ten years from the date of issue. The proviso to Section 80A(1) empowers the Company Law Board to consent to the issuance of further redeemable preference shares if a company cannot redeem existing shares within the stipulated period. The court concluded that the Board's power under Section 80A is broad and includes the authority to impose conditions, as long as they are not arbitrary or capricious.

3. Estoppel Against the Appellant from Challenging the Condition:
The court highlighted that the appellant's counsel had conceded to the shareholders' demand for a higher dividend and left the decision to the discretion of the Company Law Board. Given this concession, the court held that the appellant could not later challenge the condition imposed by the Board. The court emphasized that the appellant had accepted the jurisdiction of the Board to direct the payment of a higher dividend, thus estopping it from questioning the condition.

Conclusion:
The court dismissed the appeal, affirming that the condition imposed by the Company Law Board was equitable and just, and within its jurisdiction under Section 80A of the Companies Act, 1956. The appellant's challenge to the condition was deemed untenable, given the prior concession to the demand for a higher dividend.