1998 (3) TMI 681 - Board - Companies Law

Summary

Issues Involved:
1. Maintainability of the Petition
2. Preferential Allotment of Convertible Warrants
3. Allegations of Oppression and Mismanagement
4. Legal Infirmities in Board Resolutions and Meetings
5. Compliance with SEBI Guidelines
6. Final Directions for Implementation

Summary:

1. Maintainability of the Petition:
The primary issue was whether the petitions met the requirements of Section 399 of the Companies Act. The respondents argued that the petitioners did not hold the requisite percentage of shares at the time of filing. However, the Board concluded that the relevant shareholding should be considered before the contested allotment of additional shares. Since the petitioners held more than 10% shares before the allotment, both petitions were deemed maintainable.

2. Preferential Allotment of Convertible Warrants:
The core issue involved the preferential allotment of 110 convertible warrants to the promoters at par value, despite the market price being around Rs. 400 per share. The petitioners claimed this resulted in undue benefits to the promoters, amounting to Rs. 40 crores, and constituted oppression.

3. Allegations of Oppression and Mismanagement:
The petitioners alleged that the preferential allotment was an act of oppression, enriching the promoters at the expense of the company and minority shareholders. They argued that the directors misused their fiduciary position to increase their holdings, reducing the petitioners' stake.

4. Legal Infirmities in Board Resolutions and Meetings:
The petitioners contended that the board resolutions approving the preferential allotment were invalid due to the lack of quorum of disinterested directors and insufficient disclosure in the explanatory statement. They also questioned the validity of the board and committee meetings held on September 14, 1994.

5. Compliance with SEBI Guidelines:
The petitioners argued that the preferential allotment violated SEBI guidelines issued on August 4, 1994, which required pricing of preferential allotments to be market-related. The respondents countered that the guidelines allowed implementation of resolutions passed before their issuance within three months.

6. Final Directions for Implementation:
The Board concluded that the preferential allotment was not oppressive, as the promoters aimed to maintain their shareholding in light of a proposed private placement. However, to address the reduced public holding, the Board directed the company to implement its decision to allot four lakh shares to financial institutions and others by December 31, 1998. If this did not materialize, the company was to issue shares at par to willing shareholders, excluding those who received convertible warrants, within three months.

Conclusion:
The petitioners failed to establish a case for relief. The preferential allotment was not deemed oppressive, and the Board issued directions to ensure the public shareholding was maintained. The second petition was considered more comprehensive and was addressed in the order, while the first petition was dismissed as infructuous.