2011 (5) TMI 1064 - HC - Companies Law

Summary

Issues Involved:
1. Whether the application submitted by the appellant No. 3 on 30th May, 2001, for repurchase of US64 units was incomplete and liable to be rejected.
2. Interpretation of the terms of the brochure and statutory requirements under the Companies Act, 1956.
3. Whether the respondent could reject the application based on the absence of a Board resolution for disinvestment.
4. Applicability of Section 292 of the Companies Act, 1956, to the repurchase application.
5. Whether a writ petition is maintainable in this context.

Issue-Wise Detailed Analysis:

1. Incompleteness of the Application:
The core issue was whether the application submitted by appellant No. 3 on 30th May, 2001, was incomplete and thus liable to be rejected. The learned Single Judge had dismissed the writ petition, holding that the application was incomplete due to the absence of a Board resolution for disinvestment. However, the appellants argued that the application was complete as per the terms of the brochure and statutory requirements.

2. Interpretation of Brochure Terms and Statutory Requirements:
The brochure provided detailed instructions for the repurchase of US64 units, requiring units to be duly discharged and submitted except during book closure. The appellant No. 3 complied with these requirements, including providing bank account details as per clause 10 of the brochure. The respondent's rejection was based on the absence of a Board resolution for disinvestment, which was not explicitly required by the brochure.

3. Requirement of Board Resolution:
Clause 20(6) of the brochure required certain documents at the time of purchase but did not stipulate the need for a Board resolution for repurchase. The person who submitted the repurchase application and discharged the certificates was the same individual authorized by the resolution for purchase. The respondent's argument that 'investment' includes 'disinvestment' was found to be self-contradictory. If 'investment' includes 'disinvestment,' the same resolution authorizing the Managing Director to invest would also cover disinvestment.

4. Applicability of Section 292 of the Companies Act, 1956:
Section 292(1)(d) of the Act deals with the power to invest funds, which requires a Board resolution. However, the court found that submission of a Board resolution to a third party is not a statutory requirement under Section 292. The doctrine of indoor management applies unless there are grounds for suspicion, which were not present in this case. The respondent could not assume non-compliance with Section 292 without evidence.

5. Maintainability of Writ Petition:
The court held that a writ petition is maintainable against a state instrumentality acting arbitrarily, even in contractual matters. The appellants had approached the court under Article 226, and the court found that the respondent's actions were arbitrary and not in accordance with the agreed terms.

Conclusion:
The appeal was allowed, and the letter of rejection dated 16th June, 2001, was quashed. The respondent was directed to pay Rs. 19,60,728/- with simple interest @ 8% per annum from 1st August, 2001, until payment is made. The court emphasized that the respondent could not unilaterally impose fresh conditions not mentioned in the brochure and that the decision-making process was flawed.