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2020 (10) TMI 826 - Tri - Companies LawPledge of property - existence of two subsisting status quo orders on the properties of the Company which is restricting the Company to pledge its properties to raise funds from Banks and other Financial Institutions - threat from the lenders to surge the interest rate and take coercive legal steps if the dues of corporate lenders are not cleared. HELD THAT - CLB missed a most basic principle of Section 397, namely, that mere unfairness does not constitute oppression. When the petitioners were given the right to subscribe to the 'rights issue' along with all others in the same proportion, no prejudice, whatsoever, could have been caused to them. It is not in dispute even by the petitioners that the need for more funds was an admitted position - In fact, no unfair prejudice has been caused to the petitioners. The CLB failed to take note of all these vital aspects and relied on irrelevant materials. Apart from these, it is pointed out that the company having turned the corner and doing well, it would be fair exercise of discretion by this Court not to interfere with the High Court judgment. The impugned judgment of the High Court is fair to both sides and safeguards the interest of the directors and shareholders; hence there is no valid ground to interfere under Article 136 of the Constitution of India. It is true that there is status-quo order passed by the CLB as well as Civil Court with regard to the assets of the Company. Therefore, 1st Applicant Company cannot sell any of its assets to discharge the debt due to the lenders. The only way to discharge the debt of the Creditors is to raise additional capital by issuing shares to the existing shareholders and for which purpose the order dated 07.12.2006 passed by the CLB directing the company to maintain status-quo with regard to shareholding pattern, is to be relaxed by permitting the 1st Applicant Company to go for rights issue according to the provisions of Section 62 of the Companies Act, 2013 - We are making it very clear that relaxation of order dated 07.12.2006 is for the limited purpose of raising additional capital by issuing additional shares for discharging the debt due to the creditors and after completing the process, the order passed by the erstwhile CLB as regards to the status-quo of shareholding pattern will continue. However, the persons acquiring shares in pursuance of Rights Issue cannot exercise additional voting rights to the extent of shares accrued in the Rights Issue until further orders or till disposal of the main petition, whichever is earlier. Application disposed off.
Issues Involved:
1. Modification of the order dated 07.12.2006 passed by the Company Law Board (CLB) to proceed with a rights issue. 2. Existence of status quo orders on the properties and shareholding pattern of the company. 3. Necessity and justification for raising additional capital under Section 62 of the Companies Act, 2013. 4. Allegations of fictitious trading turnover and the validity of inter-corporate loans. 5. Objections raised by the Respondents regarding the application being barred by limitation and other procedural concerns. Issue-Wise Detailed Analysis: 1. Modification of the Order Dated 07.12.2006: The interlocutory application was filed by the Respondents in the main Company Petition to modify the CLB order dated 07.12.2006 to allow the company to proceed with a rights issue. The Applicants argued that this modification was necessary to raise additional capital under Section 62 of the Companies Act, 2013, to sustain operations and repay loans. 2. Existence of Status Quo Orders: The Applicants highlighted two subsisting status quo orders: one regarding the immovable properties of the company dated 14.07.2006, and the other concerning the shareholding pattern dated 07.12.2006. These orders restricted the company from pledging its properties to raise funds, leading to financial difficulties and threats from lenders to increase interest rates and take legal steps. 3. Necessity and Justification for Raising Additional Capital: The Applicants argued that due to the restrictions imposed by the status quo orders, the company could not pledge its properties to raise working capital loans and had to resort to inter-corporate borrowings. The Applicants demonstrated that these borrowings led to increased turnover and profits, enabling dividend payments in the past two years. They contended that raising additional capital through a rights issue was crucial to repay the loans and protect the company's assets. 4. Allegations of Fictitious Trading Turnover and the Validity of Inter-Corporate Loans: The Respondents refuted the Applicants' claims, alleging that the application was filed with malafide intentions to delay proceedings. They argued that the application was barred by limitation and that there was no necessity for the company to raise working capital loans as its operations had been shut down for two decades. The Respondents also questioned the validity of the inter-corporate loans, alleging that the documents provided were fabricated and that the loans were not genuine. 5. Objections Raised by the Respondents: The Respondents raised several objections, including the claim that the application was barred by limitation and that the company had sufficient funds in fixed deposits. They also argued that the Applicants had not provided adequate details to substantiate their claims of borrowing money from private sources. The Respondents contended that the company's balance sheet showed fixed deposits worth ?1,10,00,000/-, which could be used to repay the loans instead of raising additional capital. Discussion and Conclusion: The Tribunal carefully considered the arguments and evidence presented by both parties. The Tribunal found that the Applicants had provided sufficient proof of borrowing money from corporate lenders and that the company needed to raise additional capital to discharge its debts. The Tribunal noted that the status quo orders restricted the company from selling its assets, making it necessary to raise funds through a rights issue. The Tribunal concluded that modifying the order dated 07.12.2006 to allow the company to proceed with the rights issue was justified and necessary to protect the company's assets and interests. The Tribunal emphasized that the relaxation of the order was for the limited purpose of raising additional capital and that the status quo regarding the shareholding pattern would continue after the process was completed. Order: The application was disposed of with directions to allow the Applicants to proceed with the rights issue under Section 62 of the Companies Act, 2013. The relaxation of the order dated 07.12.2006 was limited to raising additional capital for discharging the company's debts, and the status quo on the shareholding pattern would continue after the process. The persons acquiring shares through the rights issue would not exercise additional voting rights until further orders or the disposal of the main petition.
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