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TMI Blog1991 (4) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... r setting up a modern cement plant in Gujarat had not made any worthwhile progress. At that stage Shri Mahendra N. Mehta, the Chairman of the Mehta group of companies, had come to India on a brief visit in the year 1980. The then Chief Minister of Gujarat and the Finance Minister invited him to meet them and asked him to participate in the efforts to attract capital NRI investment in the State of Gujarat. After assurance from the concerned persons Shri Mehta acceded to the request and agreed to participate and become a co-promoter with the GIIC for implementing the project of respondent No. 1-company. It is the say of the petitioners that the Mehta group is having vast and varied operations in various parts of the world in different industries ranging from agro-industries, chemicals, engineering, cables, sugar, cement, plastics, etc., with operations in Kenya, Uganda, Canada, U.S.A., Cameroon, England and Sri Lanka. The Mehta group and the GIIC arrived at an agreement and a memorandum of understanding and thereafter a shareholders' agreement dated April 9, 1981, was executed between the Mehta group and the GIIC which contemplated participation in equity of respondent No. 1-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Corporation and the Mehtas hold equity shares in the ratio of 26 per cent, and 25 per cent, respectively and if the board of directors of the company finds it necessary to constitute any committee for formulating policy matters, such committee shall consist of directors represented equally by the Corporation and the Mehtas. The Chairman of the committee shall be from among the Corporation directors and the Chairman shall have the casting vote at the committee meeting". The aforesaid terms and conditions of the shareholders' agreement are also reflected in the memorandum and articles of association of the Cement Corporation of Gujarat Limited. The relevant articles 10( a ), ( c ) and ( d ) and 11 are as under : "10( a ) Unless otherwise determined in a general meeting and subject to the provisions of section 252 of the Act, the number of directors of the company shall not be less than three or more than fifteen excluding debenture, special and Corporation directors, if any. One-third of the total directors shall be non-rotational directors. The Chairman and managing director of the company shall not be liable to retire by rotation. The GIIC and TMIL shall be entitled to nomina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .56 Interest free deposit from promoters 0.69 Addl. loan from institutions 26.66 Ad hoc loans for funding interest from institutions 9.59 Infra-structural loan 2.00 Total 46.50 The equity of Rs. 7.56 crores was to be raised as under : (Rs. in crores) Respondent No. 2 2.86 Mehta group 2.70 IDBI and institutions 2.00 Total 7.56". A copy of IDBI's letter dated September 30, 1988, advising the above financing pattern is annexed as annexure "15" to the petition. In this view of the matter, the Mehta group was required to subscribe for equity shares of Rs. 2.70 crores and respondent No. 2-GIIC was required to subscribe for Rs. 2.86 crores. However, GIIC was not prepared to subscribe shares for the aforesaid amount. On September 30, 1988, the managing director of the GIIC wrote a letter (annexure "18") to Mr. M.N. Mehta stating that the corporation would contribute to the additional equity towards the over-run, subject to the condition that the Mehta group shall buy back this additional equity over a period of one year. Alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, 1989 (annexure "27"). The petitioners have produced on record the board resolution that for a few days or months staying in the Hotel President in Bombay, the company was required to spend more than Rs. 13 lakhs for Mr. T.V. Balan and Mr. A.K. Joshi. Thereafter the IDBI called for review and suggested that over and above Rs. 6.7 crores, further equity of Rs. 11 crores would be required as promoters' contribution. The IDBI suggested that further private promoters should be inducted into the management of respondent No. 1-company. Probably from that period the dispute had arisen between the Mehta group and the GIIC. It seems that the Mehta group had suggested various other companies including the Birla Jute and Industries Ltd. and other private companies while the GIIC seems to be interested in Gujarat Ambuja Cements Ltd. Because of this dispute and various acts committed by respondent No. 1-company it is contended by the petitioners that the petitioners who are minority shareholders are oppressed by the respondents with the aid of the State Government as the GIIC and the State Government want to hand over respondent No. 1-company to the Gujarat Ambuja Cements Ltd. It has been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of the company and to report to this Hon'ble Court the financial irregularities which have been committed by the present management of the respondent No. 1-company ; ( g )That the respondents be restrained from inducting any new management from transferring shares or issuing shares without the prior consent of the petitioners ; ( h )That the respondents be restrained by an order or injunction from this Hon'ble Court from directly or indirectly permitting any additions or alterations to the board of directors or to the management of respondent No. 1-company without the prior permission of this Hon'ble Court; ( i )That the respondents be directed to close the rights issue, and allot shares for the amount which was received from the respective applicants and further to utilise the amount so received towards satisfying the bridge loan-of Rs. 2.70 crores received from the Indian Bank with all incidental charges, etc., immediately ;" Pending hearing and disposal of this petition, by taking out a judge's summons, the petitioners have prayed for various interim reliefs. One of the main prayers is that the respondents be directed to consider Mr. M.N. Mehta as continuing as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has already received the amount of Rs. 270 lakhs from the Indian Bank which has been reported to have been arranged by the SHPL, an associate company of the TMIL. Shri M.N. Mehta is a director of TMIL as well as SHPL and is also a director on the board of the CCGL (the querists). In view of this whether the amount borrowed by the querist company from the Indian Bank which is said to have been arranged by the SHPL towards their advance contribution for the rights shares of the querist company, will amount to indirect loan given by the querist company to the SHPL within the meaning of section 295 of the Companies Act, 1956 ? 2.2. Whether the non-reimbursement of interest amounting at present to approximately Rs. 70 lakhs by the SHPL will fall within the purview of the provisions of section 295 of the Companies Act, 1956 ? 2.3. Whether the adjustment of Rs. 8.39 lakhs whereby the company's funds have been appropriated by the Indian Bank will be treated as indirect loan given by the querist company to the SHPL ? And if so, whether the provisions of section 295 of the Companies Act, 1956, will be attracted ?" After considering all the aspects in detail, the opinion was give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany or elsewhere. If the defendants desire to postpone the annual general meeting it will be open to them to do so and the plaintiff shall agree to any such postponement desired by the defendants". It should be noted at this stage that neither of the respondents has moved for vacation of the said injunction order till today. In spite of this injunction order, if is the contention of the respondents that in the meeting which was held on December 29, 1990, the petitioner has resigned as a director or, in the alternative, as he is not re-elected, he ceases to be a director of the company. The respondents have not produced any written resignation given by Mr. M.N. Mehta. Even in the minutes of the meeting of the board of directors which was held on December 29, 1990, it is nowhere mentioned that Mr. M.N. Mehta has tendered his resignation as a director of the company. It is the contention of the petitioners that in the meeting of the board of directors held on December 29, 1990, Mr. M.N. Mehta was shown certain allegations made against him or Jai Mehta or the previous managing director. That item was taken on the agenda as an additional item with the permission of the chair. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementation and observance of the terms and provisions contained and the spirit of this agreement, both the parties to the agreement would exercise voting rights in accordance with the agreement and that the parties are entitled to specific performance of the terms of the agreement including obligations contained in the clauses as to the exercise of voting rights. Keeping in view the aforesaid agreement the trial court has granted the interim injunction. On December 29, 1990, at 3.30 pm. the annual general meeting of the shareholders of the company was held as per the agenda (annexure "55"). The following business was to be transacted : " Ordinary business 1.To receive and adopt the directors' report and audited profit and loss accounts for the year ended March 31, 1990, and balance-sheet as at that date (please see directors' statement attached herewith). 2.To appoint a director in place of Shri P.G. Ramrakhiani, IAS, who retires by rotation, and being eligible offers himself for re-appointment. 3.To appoint a director in place of Sri K. Lalit, who retires by rotation, and being eligible offers himself for re-appointment. 4.To appoint a director in place of Shri M.N. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1-company held on December 29, 1990, in item No. 7 it has been specifically stated that the chairman of the State Bank of India was of the view that the State Bank of India would not consider re-examination for providing working capital till such time as the Mehtas remain shareholders in respondent No. 1-company. The minutes further state that it was explained to the chairman of the State Bank of India that the issue of the Mehtas opting out of shareholding will take some time. The entire minutes with regard to item No. 7 reflect that respondent No. 2 is interested in seeing that the Mehta group is ousted. One of the reasons for doing so may be because of the dispute of bringing in Gujarat Ambuja Cements Ltd. as another private promoter or because of personal opinion as expressed by Mr. P. C. Ramrakhiani in his letter annexure exhibit "39". It is his view that Mr. M.N. Mehta should be replaced. He has further opined to the Government of Gujarat that for revival of the company a new joint sector partner should be selected in such a way that he understands the culture and ethos of the joint sector partnership in the State of Gujarat. He has further opined that only financial comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand adjourned till the same day in the next week, if it is not a public holiday, at the same time and place. Therefore, as per the statutory provision the meeting for re-appointing the director stands adjourned for a week. The question, therefore, is, if that statutory meeting is not held, what is its effect ? The answer to this question is provided in clause ( b ) of sub-section (4) of section 256. It provides for a deeming fiction if certain conditions are fulfilled. It provides that the retiring director shall be deemed to have been re-appointed at the adjourned meeting if certain conditions are fulfilled. It should be noted that ( a )there is no injunction against the respondents from calling the annual general meeting for considering agenda item No. 4 for re-appointment of Mr. M. N. Mehta as a director of the company ; ( b )in the annual general meeting held on December 29, 1990, no resolution has been passed not to fill up the vacancy of Mr. Mehta ; ( c )the resolution for re-appointment of Mr. Mehta has not been put to the meeting ; ( d )Mr. Mehta has not given a notice in writing addressed to the company or its board of directors expressing his unwillingness t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Co. Ltd. [1959] 29 Comp. Cas. 276 (Guj), under which such compulsory retirement takes place even when an annual general meeting is, in fact, not held ; and, thirdly, that since at that meeting which should have been statutorily adjourned to June 9, 1967, the third petitioner's place as a retiring director was not filled up, nor was it resolved that his vacancy was not to be filled up, nor was any resolution for his appointment put to the meeting and lost, the third petitioner must be deemed to have been re-appointed as a director for a further term at that adjourned meeting of June 9, 1967. Considering the aforesaid law and the facts of the present case and the fact that since 1981 Mr. M.N. Mehta continues as a director, in my view it would be just and proper to give an interim direction that Mr. M.N. Mehta continues to be a director of the company. In view of the aforesaid direction that Mr. Mehta continues to be a director of respondent No. 1-company, it would not be necessary to pass any order with regard to the prayer that the respondents should be directed to give full access to Mr. Mehta and/or their nominees to the records of respondent No. 1-company because sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, it should be noted that in the meeting of the board, of directors of the company which was held on March 27, 1989, on behalf of Mehta International Ltd., Messrs. Sumaraj Holdings Pvt. Ltd. had made an arrangement to provide a sum of Rs. 270 lakhs. The arrangement was made with the Indian Bank to provide Rs. 270 lakhs to the company directly on their behalf as a temporary loan for a period not exceeding six months. It is the contention of the petitioners that Messrs. Sumaraj Holdings Pvt. Ltd. was to pay interest on it at the rate of 18 per cent, for that period. Further, as stated earlier, from the document which is placed on record it is apparent that GIIC had not agreed to subscribe for shares of Rs. 2.86 crores. Because GIIC failed to subscribe for it as per the shareholders' agreement between the GIIC and TMIL, the Mehta group agreed to purchase its shares through its nominee, B.O.I. Finance. Mr. Shah, the learned advocate appearing on behalf of GIIC, states that B.O.I. Finance is not the nominee of the Mehta group. As against that, it has been submitted by learned counsel for the petitioners that on behalf of the Mehta group, B.O.I. Finance has sent its application for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was tied up and, therefore, the board of directors should agree to the following courses of action so that Rs. 3 crores can be made available to the company : "(1)After receipt of this subscription of Rs. 3 crores the rights issue is to be closed and shares are to be allotted within four weeks thereafter. (2)The amount so received to be immediately used for repaying the bridge loan of Rs. 2.70 crores received by the CCGL from the Indian Bank. (3)As and when the IDBI and the institutions agree to subscribe, a fresh rights issue can be made and the whole matter can be resolved. You will appreciate that in view of the past controversies, this contribution of Rs. 3 crores can be made only if the issue is immediately closed at the most within a period of one week from the receipt of the money and the amount repaid to the Indian Bank. This would at the least obviate the problems with the Indian Bank". Considering the aforesaid facts, in my view it would be just and proper to direct respondent No. 1-company to accept the amount up to Rs. 3 crores for the rights issue from the Mehta group or its nominee. The said rights issue shall be closed on May 15, 1991, and the shares shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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