2022 (4) TMI 141 - Tri - Companies Law

Contribution for allotment of equity shares - whether there is a justification to allow the applicant to make further borrowings? - whether to allow the applicants to raise further share capital of the company by issuing shares to meet its immediate requirement of working capital? - HELD THAT - The issues involved in the main petition relate to the lack of proper representation in the Board meetings by one group of shareholders, who are respondents in the present application and the alleged illegality in passing important resolutions involving the directorship of the same group of shareholders and in issuance of Rights Issue. In related CAs, apart from the aforementioned issues, the prayers include stalling the appointment of additional Director, the appointment of Administrators to manage the company in the short-run and to maintain the status quo with respect to the shareholding. In short, the governance process of the corporate itself has been challenged by one major group of equal shareholding, who are respondents in the present application. It is clear that the issues are closely related and If the interim reliefs are granted then it would have direct bearing on the outcome of the Main Petition. As held in Union of India Ors. v. Modiluft Ltd., 2003 (5) TMI 530 - SUPREME COURT Raja Khan v. Uttar Pradesh Sunni Central Waqf Board Anr., 2010 (11) TMI 201 - SUPREME COURT , if interim relief is same as that of permanent relief, then it is not permissible because no case would be left for adjudication at the time of the final hearing. Unfortunately, there are unresolved issues between the two groups running the company mainly relating to the appointment of Directors and effective control over the management of the company. The prime objectives of this Bench are to ensure the smooth running of the company so that its existing assets are utlised to the fullest, to protect the legitimate interests of both the groups of shareholders and those of the current employees - The raising of finance to meet the EMI requirements is only a short-term measure. While the applicants, who are effectively in control of the company, have made efforts to arrange the short-term finance required to manage the short term requirements, the issues of Directorship and effective management by two groups, each holding 50% of shares, is still under the active consideration of this Bench. This Bench is of the view that whether a company is in genuine need of more capital or not, and the route to be adopted for meeting the financial requirements of the company, will be decided by the Board of Directors and it is incumbent on them to exercise their powers for the benefit of the company. It is noted that the Board of Directors has inherent powers, unless otherwise provided in the Articles, to increase the prescribed share capital as per the provisions of the Companies Act 2013 - Application dismissed.

Summary

Issues:
1. Direction to deposit contribution for allotment of equity shares
2. Authority to raise further share capital for working capital requirements

Issue 1: Direction to deposit contribution for allotment of equity shares

The Tribunal addressed the application requesting the Respondents to deposit ?75,00,000 towards their share of contribution for equity shares allotment. The Applicants had previously made an allotment of equity shares to align their shareholding with the Respondents. The Respondents filed an interim application seeking to maintain the status quo in the company, which was granted by the Tribunal. The Respondents alleged mala fide intentions on the part of the Applicants in reducing their shareholding. The Tribunal noted a financial crunch in the company and the need for finance infusion to service debt burdens. However, considering the ongoing disputes and the need to maintain the status quo, the Tribunal dismissed the application, emphasizing that any decision on further share capital issuance should be left to the Board of Directors pending resolution of the main petition.

Issue 2: Authority to raise further share capital for working capital requirements

The Applicants sought permission to raise further share capital to meet immediate working capital needs. The Tribunal highlighted unresolved issues between shareholder groups regarding directorship and management control. While acknowledging the short-term financial requirements, the Tribunal emphasized the need for smooth company operations and protection of all stakeholders' interests. The Tribunal referenced its earlier order to maintain the status quo in shareholding pending the main petition's disposal. Considering the pending disputes and the importance of directorship decisions in capital raising, the Tribunal held that allowing further share capital issuance at this stage could prejudge pending issues. Consequently, the application was dismissed, and the decision on capital raising was left to the Board of Directors as per the Companies Act 2013.

Separate Judgment:

In a related application (CA No.19/2022), the Applicants requested permission to raise additional loans to service the company's debt. The Tribunal, noting the company's need for financial infusion, allowed the Applicants to raise additional loans subject to the observations made in the earlier order regarding shareholding pattern and directorship. The application was allowed and disposed of accordingly.

In conclusion, the Tribunal's judgments focused on the complex shareholder disputes, financial challenges, and the need to maintain corporate governance integrity. The decisions underscored the importance of resolving internal conflicts, protecting stakeholder interests, and ensuring proper decision-making processes within the company.