1971 (3) TMI 78 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the notice and explanatory statement under the Monopolies and Restrictive Trade Practices Act (MRTP Act).
2. Disclosure of necessary permissions under the Industries (Development and Regulation) Act.
3. Disclosure of terms and conditions of the collaboration agreement.
4. Validity of the resolution after the increase in share capital of Swadeshi Polytex Ltd.

Issue-wise Detailed Analysis:

1. Validity of the Notice and Explanatory Statement under the MRTP Act:
The petitioner argued that the notice and explanatory statement did not disclose whether permission had been obtained from the Central Government under the MRTP Act for establishing Swadeshi Polytex Ltd., which would be an inter-connected undertaking of the respondent-company. The court analyzed sections 20 and 22 of the MRTP Act, which apply to undertakings with assets not less than Rs. 20 crores. The assets of the respondent-company and its subsidiary exceeded this threshold. The court held that the MRTP Act aims to prevent the concentration of economic power and that the value of assets should include the shares of the subsidiary company held by the holding company. Despite the contention that the value of these shares should be excluded, the court concluded that section 22 would apply if Swadeshi Polytex Ltd. is an inter-connected undertaking of the respondent-company. The court also held that the petitioner had the locus standi to bring the action, as shareholders are competent to question the validity of the notice of a resolution.

2. Disclosure of Necessary Permissions under the Industries (Development and Regulation) Act:
The petitioner contended that the notice and explanatory statement did not disclose whether a license under section 11 of the Industries (Development and Regulation) Act had been obtained. The court examined section 11, which requires a license before establishing a new industrial undertaking. The court concluded that the statute does not prohibit taking steps for establishing a new industrial undertaking except under a license. Since the license was obtained before the meeting, the shareholders suffered no prejudice, and the contention failed.

3. Disclosure of Terms and Conditions of the Collaboration Agreement:
The petitioner argued that the terms and conditions of the collaboration agreement, financial or technical, were not disclosed. The court referred to the case of East India Commercial Co. Ltd. v. Raymon Engineering Works Ltd., which held that the technical aspects of the collaboration agreement need not be disclosed. The court found that the collaboration agreement in question was purely technical, with no provision for financial participation by the foreign collaborator. Therefore, the terms and conditions did not require disclosure, and the petitioner's plea lacked bona fides.

4. Validity of the Resolution After the Increase in Share Capital of Swadeshi Polytex Ltd.:
The petitioner argued that the basis of the resolution had disappeared due to the increase in share capital of Swadeshi Polytex Ltd. The court noted that the explanatory statement disclosed the proposed increase in share capital. The court held that the resolution could still be confirmed despite the increase in share capital. The court rejected the argument that the increase in share capital to avoid inter-connection was evidence of inter-connection, stating that it was a legitimate procedure.

Conclusion:
The court granted an injunction restraining the respondents from giving effect to the resolution set out in the notice dated September 14, 1970. The order was made without prejudice to the rights of the respondents and the members of the respondent-company to pass a fresh resolution according to law. The court also provided a stay of operation of the order for three weeks upon the respondents giving an undertaking not to invest in the shares of Swadeshi Polytex Ltd. during this period.