9911796707
TMI Blog1977 (6) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... e main allegations in the said petition brought, under sections 397 and 398 of the Companies Act are that the board of directors of the company purportedly passed a resolution on 31st March, 1977, deciding to raise the equity capital of the company by authorising the issue of 1,14,000 equity shares of Rs. 10 each amounting to Rs. 11,40,000 which according to the applicants represents 60 per cent. of the existing equity capital; that the exercise of the powers of the board of directors in this behalf is not informed by considerations relevant to the matter and is not in the interests of the company, but is actuated by collateral and oblique motive of acquiring a controlling interest by the Indrasen group. There are also certain allegations of financial irregularities, discrepancies in the accounts and the further allegations that the Indrasen group is making fraudulent and secret profits. When the said Company Petition No. 20/77 came up before me on the 17th of May, 1977, Sri S.G. Sundaraswamy took notice on behalf of the company and wanted a short adjournment till today to file his counter to the interlocutory application and argue the matter. Accordingly, the matter stood adjour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated March 31, 1977, was at the face value of Rs. 10 would clearly go to show that there was no intent or expectation on the part of the directors that there was any possibility of raising any additional capital by the issue of shares. Sri Ray contended that the undue and unbecoming haste in which the allotments to the allottees, who according to him, are merely the nominees of the Indrasen group were made and the fact that applications for the shares by non-members were entertained even before the last day, i.e. , May 27, 1977, fixed for renunciation of the offer by the shareholders, in themselves amount to conclusive evidence of the mala ftdes on the part of the board of directors in mailing the impugned resolution and the allotments made pursuant thereto. Sri Ray strongly urged that the allotment of the said 1,14,000 shares made pursuant to the impugned resolution of the board of directors being wholly mala fide and having been demoastrably for a collateral purpose, the exertion of the voting power stemming from the said allotment at the ensuing annual general meeting of the company, if permitted, would result in irreversible illegalities and put the applicants under an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat, according to their learned counsel, is "a very strong prima facie '' case. The question that arises is as to the balance of convenience between the parties and the imminent and uncompensatable disadvantage or some irreversible detriment that may result to the applicants by the denial of the relief. In this context, it is not necessary for the court lo find a case for the applicants which would entitle them to relief at all events ; but it is quite sufficient if the court finds that the case shows that there are substantial questions to be investigated and that the matter has to be preserved in status quo until the question can finally be disposed of. The consequences resulting from allowing the annual general meeting to be held as urged and envisaged by Sri Ray, learned counsel for the applicants, proceeds on the assumption that the allotment of the shares in question is void. To hold so, at this stage, and proceed on that assumption would, in my opinion, amount to prejudging the matter. The House of Lords in American Cyanamid Co. v. Ethicon Ltd. [1975] 2 WLR 316 (HL) observed (page 323): "It is no part of the court's function at this stage of the litigation to try to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant, to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial. The court must weigh one need against another and determine where 'the balance of convenience' lies". The burden of establishing that the inconvenience which the applicants will suffer by refusal of the injunction is greater than what the respondents will suffer, if it is granted; lies clearly on the application. It is seen that the allottees who are alleged to be nominees of the Indrasen group are not impleaded in this action. It is not also averred that the intrinsic or break-up value of the share is not anywhere near about Rs. 10, After a careful and anxious consideration of the matter, and subject to the conditions which 1 propose to impose, I must hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oportion in which they should issue is a matter left entirely to their discretion and it is not the province of the court to interfere with the exercise of that discretion. This power of the directors, it was however made clear, was subject to the general exception that the directors were not to act against the interests of the company or mala fide . In pressing this ruling into service, the learned counsel would virtually ask me to hold that the allotment in the present case is, in fact, mala fide . That is precisely the matter to be gone into at the trial and as stated earlier what is of materiality at this stage is the consideration as to the balance of convenience or inconvenience and hardship. I, therefore, hold that the applicants have not made out a case for an order of stay of the annual general meeting to be held on June 23, 1977. However, Sri Ray submitted that in the event the annual general meeting is to be held, it should not be held under the chairmanship of any of the present respondents and that a member of the Bar may be appointed to act as chairman, to preside over and conduct the deliberations of the said meeting, and submit a report of the proceedings to thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
