2013 (12) TMI 1717 - HC - Companies Law

Summary

Issues Involved:
1. Legality of the consolidation of share capital.
2. Allegations of oppression and unfair treatment of minority shareholders.
3. Validity of the amended article 62A of the articles of association.
4. Compliance with the provisions of the Companies Act, 1956.

Summary:

1. Legality of the consolidation of share capital:
The appellant challenged the order of the Company Law Board (CLB) dismissing their petition u/s 397 and 398 of the Companies Act, 1956, which sought to declare the special resolution for consolidation of equity share capital as ultra vires, illegal, and void. The consolidation increased the nominal value of shares from Rs. 10 to Rs. 2,50,000, effectively consolidating 25,000 equity shares into one. The CLB found that the consolidation was done as per the Act and the articles of association, and the exit offer of Rs. 1,630 per share was just and equitable.

2. Allegations of oppression and unfair treatment of minority shareholders:
The appellant argued that the consolidation was a mala fide action aimed at driving out minority shareholders. However, the CLB held that there were no materials to support this claim and that the consolidation was approved by an overwhelming majority of shareholders. The court cited the case of Sandvik Asia Ltd. v. Bharat Kumar Padamsi, which held that a company can reduce its share capital in any way, provided the procedure laid down by the Companies Act is followed and the amount offered to shareholders is just and fair.

3. Validity of the amended article 62A of the articles of association:
The appellant contended that the amended article 62A was contrary to the provisions of the Companies Act and Table A of Schedule-I. The court, however, found that the amendment was legally permissible and in accordance with section 94(1)(b) of the Act, which allows for the consolidation and division of share capital into shares of larger amounts. The court also noted that the amendment provided a mechanism for dealing with fractional entitlements, which was approved by the majority of shareholders.

4. Compliance with the provisions of the Companies Act, 1956:
The court held that the consolidation of shares and the amended article 62A were in accordance with the provisions of the Companies Act, 1956. The court rejected the appellant's argument that the amendment was contrary to law, noting that section 94(1)(b) expressly provides for the consolidation of shares. The court also found that the procedure adopted to take over fractional shares was legal and could not be faulted.

Conclusion:
The court dismissed the appeal, finding no merit in the appellant's arguments. The consolidation of shares and the amended article 62A were held to be legally permissible and in accordance with the provisions of the Companies Act, 1956. The court concluded that the appellant was not entitled to any of the relief sought.