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TMI Blog1995 (5) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... neral meet- ing on 12-9-1994 and permitted the respondents and their associates to vote on the basis of their total shareholding submitted by them to the Hon'ble Supreme Court. The Court further directed that the votes in respect of number of Partly Convertible Debentures (PCDs) offered and applied for the number of Additional partly convertible debentures, applied for under rights issue of the applicant-company in respect of 11 Reliance companies be maintained separately. The Supreme Court further directed that the results of voting on Resolution Nos. 10 to 12 would not be declared nor would any decision about the passing of the said resolutions be taken on the basis of the said voting until further orders. The applicant-company was directed to keep the results of the voting on the rights shares in a sealed envelope and intimate to the Supreme Court promptly. On 12-9-1994, the AGM of the company was held. Poll was taken on Resolution Nos. 10 and 11. Consideration of Resolution No. 12 was deferred till 27-9-1994. The results of the other resolutions were announced either unanimous or by a overwhelming majority. On 25-10-1994, the sealed envelope was opened. As per the results, 94 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1216 Long Term sources for Working Capital 150 Issue Expenses 70 1918" Since a part of the total funds, viz., Rs. 1,216 lakhs out of Rs. 2,250 lakhs raised, PCDs was to be utilised for a new project, viz, Beer Project, instead for which they were originally raised and since in order to comply with the conditions imposed by the financial institutions and other authorities, the Beer Project could be implemented from the funds raised by PCDs earlier, after obtaining the approval of the shareholders of the company at the AGM. There is nothing illegal in such a course of action and it is always left open to the shareholders to deny their permission in which case funds cannot be diverted to new project not originally envisaged. In the instant case, not less than 87 per cent of the votes polled were cast in favour of Resolution No. 10 as proposed by the applicant-company. The company should, therefore, be permitted to implement the Resolution. The votes cast against Resolution Nos. 10 and 11 were votes cast by the Reliance companies and their supporters. The Government of India, public financial institutions, SEBI, the RBI and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod and at such time or times as the Board may decide and in accordance with the abovesaid guidelines of SEBI and that the said shares so offered and allotted shall have a lock-in period of five years from the date of allotment. The aforesaid number of shares have been calculated on the basis of an estimated premium of Rs. 40 per share and that the same shall be varied depending upon the calculation of the premium in accordance with the SEBI guidelines by the statutory auditors of the Company and a modification in regard to the number of shares, if necessary, will be placed at the general meeting. 'RESOLVED FURTHER that such aforesaid shares shall rank paripassu in all respects with the existing equity shares except as regards dividends. The said shares shall rank proportionate dividend from the date of allotment. 'One of the conditions imposed by the Government of India on the company for implementing the beer project that 20 per cent of the project cost is to be financed out of equity to be raised in hard foreign currency from Non-Resident Indians (NRIs) and foreign Bodies Corporate. To enable the company to comply with this condition, it was proposed to seek the approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act (including any re-enactment thereof) and subject to such further approvals as may be necessary from any authority and subject to such terms and conditions and modifications as may be prescribed in granting such approvals and agreed to by the Board of Directors of the Company (hereinafter referred to as the 'Board' which term shall be deemed to include any Committee of the Board as may be constituted) consent be accorded to the Board to issue, offer and allot not exceeding 1,01,04,000 equity shares of Rs. 10 each at a premium to be calculated in accordance with the guidelines of the Securities and Exchange Board of India (SEBI) dated 4-8-1994 and such other amendments as may be made thereto in respect of calculation of the premium on the shares to Mr. Pradip D. Kothari and his group, viz, his relatives, associates and associate companies ('Promoters Group') as the Board in its absolute discretion and in such manner and within such period and at such time or times as the Board may decide and in accordance with the abovesaid guidelines of SEBI and that the said shares so offered and allotted shall have a lock-in period of five years from the date of allotment. The said numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion No. 12 would not be declared nor would any decision about the passing of the resolution be taken on the basis of the said voting till further orders. The adjourned AGM was held on 20-3-1995 at 10 A.M. The applicant has filed an application seeking permission of the Court to implement Resolution Nos. 10 and 11 of the notice dated 5-8-1994. He prays that the sealed envelope may be opened and the results of Resolution No. 12 may be implemented. 10. In the counter, the respondent-plaintiff contends briefly as follows: The legality of the Resolution No. 12 is pending before this Court. The applicant-company cannot seek for opening of the envelope before this Court. If the resolutions of polling are made known to the parties, the results may become public which will have a serious consequence. Even if the results as indicate that Resolution No. 12 has been passed by requisite majority, the request for implementing the said Resolution is untenable in the light of the orders of the Supreme Court of India to decide the validity of Resolution Nos. 10, 11 and 12. The request for implementing the results may, therefore, be rejected. 11. O.A. No. 435/1995 - The applicant is the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, had it waited for clearance from the authorities for implementation of the beer project. The Regional Director, Department of Company Affairs, Madras by his letter dated 5-1-1995 addressed to the Director of Inspection and Investigation, Department of Company Affairs has stated that even though the beer project has been conceived long time back even prior to the issue of Partly Convertible Debenture issue, it was not disclosed and that the company has suppressed material facts to its shareholders and had never obtained Letter of Intent from the Government of India for establishing the beer project. It appears that based on the abovesaid letter by the Regional Director, that the Central Government has ordered limited inspection under section 209A of the Act into the accounts of the company. When the matter is the subject-matter of investigation in respect of the end-use of the funds, the utilisation of the funds which were not to be utilised for purposes other than envisaged, is not legal. Therefore, Resolution No. 10 cannot be implemented. The beer project cannot be established in Andhra Pradesh where it can no longer be established, and that on that ground also implementati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omoters group to increase their stake up to 22 per cent only. But the Resolution to be passed is for the specific purpose of enabling the preferential allotment of shares to promoters group to an extent of 51 per cent. The number of shares that are to be allowed is also expressly mentioned as 1,01,04,000 which constitutes 51 per cent. The resolution would amount to complete violation of the guidelines of the Central Government and the SEBI. The meeting held on 20-3-1995 is also liable to be declared as illegal, since, it was not adjourned validly by obtaining the approval of the members by show of hands or by poll. The very adjournment of the meeting on 12-9-1994 and the deferment of consideration of the Special Resolution No. 12 is totally bad and is liable to be declared as illegal. Proxies which have been allowed in the meeting held on 12-9-1994 have been used for the meeting held on 20-3-1994 and it is not correct. The company deliberately did not send any fresh proxies, with ulterior motive of depriving the legitimate shareholders of the company as on that date from participating in the meeting. The allotment of shares to overseas body corporate/NRIs is an indirect method of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver held that the results of voting shall not be declared nor could it be implemented until further orders. At the meeting held on 12-9-1994, the respondent company deferred the consideration of Resolution No. 12. The Supreme Court passed an order on 23-9-1994 pointing out that inasmuch as Resolution No. 12 has not been put to vote, there will be injunction until further orders as regards Resolution No. 12. The Supreme Court has subsequently held that this Court should pass further orders. As regards Resolution Nos. 10 and 11, the Supreme Court has held that the legality or otherwise of the Resolution Nos. 10 and 11 have to be considered by this Court. This Court, by its order dated 15-2-1995, permitted the respondent-company to hold a meeting for consider-ation of Resolution No. 12, but, however, has reserved the right in favour of the applicant to even thereafter challenge the validity and legality of the Resolution. The applicant is now moving this Court for an order of injunction restraining the implementation of Resolution No. 10. 16. The respondent filed a common counter to this application as well as in Application No. 1312 of 1995 contending the same averments which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments has vehemently stated that the objections that have been raised by the plaintiffs are motivated with the intention of inducting Mr. B.H. Kothari in the Board of Directors of the company and it is nothing but a proxy battle being fought by the said B.H. Kothari and had drawn the attention of this Court to para 13 of the plaint. In the said para, the plaintiff had stated that in the interest of the company and the shareholders the company should go in the hands of a professionally competent person and it would be most appropriate that one of the original promoters of the company should be given chance and at present, it would be none-else than B.H. Kothari son of H.C. Kothari. The above statement according to the learned counsel appearing for the defendants indicates the intention and the motive behind the objections raised by the plaintiffs in this Court. The learned counsel appearing for the plaintiffs would on the other hand argue that the applicant had collected money from the shareholders for specific purpose and the particulars of the issue is specific, the monies so collected is admitted to be utilised for other purposes and it is only with the intention of strengthening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e complete and its postponement would inconvenience many, we think that the ends of justice would be met if we permit the appellants to hold the meeting subject to the following conditions: 1.The appellants may hold the meeting on 12th September, 1994 but the respondent shareholders will be permitted to vote on the basis of their total shareholdings shown in the last column of the state-ment at page 218; however the votes in respect of the number of PCDs offered and applied for and the number of additional PCDs applied for in Rights issue shall be maintained separately; 2.The result of the voting on Resolution Nos. 10 to 12 taken at the said meeting will not be declared nor will any decision about the passing of the said Resolutions be taken on the basis of the said voting till further orders. The question of the rights of the respondents in the number of PCDs offered and applied for and the number of additional PCDs applied for in the rights issue shall be determined hereafter and the Court's decision will determine the outcome of the Resolution Nos. 10 to 12; 3.The result of the voting on the aforesaid rights shares shall be kept in a sealed envelope and intimated to this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t taking into account the disputed shares and there were only 5.56 per cent of voting against the Resolution. After taking into account the disputed shares, the percentage of voting for the Resolution was 89.66 per cent and it was 12.34 against the Resolution. Since the Supreme Court in its order dated 25-10-1994 and this Court in its order dated 15-2-1995 have held that the legality or otherwise of the Resolution Nos. 10,11 and 12 will have to be decided before the Resolutions could be implemented, it is for us now to examine and consider the same in the ensuing discussion. 26. The learned counsel appearing for the plaintiff has challenged the legality or otherwise of Resolution No. 10 by contending that the appli-cants company collected money from the shareholders, for specific purpose as detailed in the notice sent to the shareholders and yet money so collected was not utilised for the above purposes and it was diverted for the beer project in Andhra Pradesh without the consent of the Andhra Pradesh Government and the shareholders and the money so collected ought to have been kept in a separate account as required under section 73(3) of the Act with details of statement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irements of section 81 are complied with, there is nothing improper or illegal in the conversion of the funds. Section 61, permits the company to vary terms of the contract referred in the prospectus by getting the approval of the shareholders of the company in the AGM. When the letter of offer is accepted by the shareholders, a contract comes into effect between the company and the shareholders while the prospectus issued to the public itself is to be approved by the shareholders of the company in the AGM to have a contract. Therefore, there is no reason as to why the prospectus issued to the shareholders could not be deployed for different purpose other than one, for which, the notice has been issued. Further, the letters of intent for the manufacture of beer are received by the Kothari Orient Industries Export Ltd. on 15-12-1992 from the Government of India and the Government of India in their letter dated 15-12-1992, has observed that they are prepared to issue an Industrial Licence under the Industries (Development and Regulation) Act, 1951 to Kothari Orient Industries (Exports) Ltd. for the manufacture of beer in their existing industrial undertaking at Singanamal District An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, whichever is higher, by way of foreign/NRI equity at a premium which will have to be approved specifically. The defendant has sent a revised proposal for deployment of funds in the letter dated 24-11-1993 to the ICICI for according approval for the proposed issue of equity NRI and foreign bodies corporate, a total amount of Rs. 450 lakhs inclusive of a premium at Rs. 15 per share. The ICICI in their letter dated 18-1-1994 have informed the defendant that they have no objection to the proposed equity issue of Rs. 450 lakhs including premium to the NRIs/foreign investors subject to their obtaining the necessary statutory approvals and approval from shareholders for that purpose. The defendant have addressed a letter on 18-1 -1994 to the financial institutions, viz., UTI, LIC, GIC and its subsidiaries requesting the other factors in that letter, to fix a suitable premium for the shares to be offered to the promoters to keep their stake at the existing level of 16.91 per cent consequent on the offer of Rs. 450 lakhs to the foreign/NRI investors. In the said letter, they have informed the financial institutions that after receiving their approval, they would get the approval of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that they shall be glad to know the exact amount of premium for the proposed issue to enable them to consider their request for issue of equity shares to NRIs with repatriation benefits. It is, thus, seen that the defendant company has addressed the authorities, viz, Central Government, State Government, financial institutions like ICICI, UTI, GIC, LIC, and also the RBI for obtaining their consent and approval of issue of debenture shares in favour of the NRIs towards the beer project and the beer project has been approved by the Government of India as well as the Government of Andhra Pradesh. The correspon-dence filed by the applicant also shows that the Andhra Pradesh Govern-ment has even allotted plots for the factory to enable the defendant to start the beer project in Andhra Pradesh in pursuance of the sanction given by them subject to the approval by the shareholders. Resolution No. 10 approved the deployment of the funds to the beer project with certain percentage of shares to the NRIs, and the objections raised by the plaintiff to hold that the deployment is not proper and, therefore, the resolution is illegal cannot be given any credence at all. 28. The learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnising it, is an invalid one is not a tenable one. 29. The learned counsel appearing for the plaintiff has also argued that there is an investigation pending against the defendant company in respect of the mismanagement and misfeasance of the affairs of the company and when an investigation is pending, resolution diverting the funds of the company to another project is not proper, since, it is not only the interest of the company but also interests of the public also involved in this. The learned counsel appearing for the plaintiff bases his argument on this aspect on account of the letter addressed by the Regional Director of the company law affairs, Madras to the Director of company law. The learned counsel appearing for the defendants 1 and 2 would argue that there is no such enquiry pending as alleged by the learned counsel appearing for the plaintiff and the letter relied by the plaintiff is an internal correspondence between the Regional Director and the Director and it cannot be considered as evidence of investigation. The plaintiff would also contend that copy of the letter has not been sent to them and the letter surreptitiously obtained cannot be the basis to hold th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tters of the Stock Exchange dated 12-3-1993 and 24-9-1993 reveal that the shares have been listed in the Stock Exchange at Madras. Therefore, the contention of the plaintiff that the amount raised has not been kept in a separate bank account and, therefore, the Resolutions cannot be permitted to be implemented is not convincing and acceptable. 31. The learned counsel appearing for the defendant would also argue that even if it is assumed that there is a misstatement in the Letter of Offer, the shareholder who has subscribed on the basis of the mis- statement, is entitled for compensation for loss or damage if any, cause to him as per section 62 of the Act and the 1st defendant had also expressed its opinion that the plaintiff is at liberty to withdraw the application and the stock invested if they are not for the deployment of the funds to the beer project and in spite of it, the plaintiffs have been either withdrawn the application or asked for repayment of the amount, but are simply objecting to the implementation of the Resolution only to achieve their object of bringing B.H. Kothari into limelight. The plaintiffs are described as Satellite Companies of Ambani. B.H. Kothari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the plaintiffs to show how the issue of debentures in favour of NRIs is against law. There is no such evidence placed before Court. 34. The learned counsel appearing for the plaintiffs relies upon the Needle Industries Newey ( India ) Holdings Ltd. (AIR 1981 SC 1298) for questioning the validity of the Resolution contending that the offer is made to a Select Group to the detriment of minority group. We have to refer to the decision in O.S. Appeals 39 to 42 of 1995 in the matter of the Investment Trust of India Ltd. wherein a Division Bench of this Court has held that the Needle Industries India Ltd's case ( supra ) is not applicable to a listed public limited company. The defendant company being public listed company, the law laid down in Needle Industries India Ltd. 's case ( supra ) cannot be made applicable. Therefore, the contention of the plaintiff that the Resolution No. 11 encourages allotment of debentures in favour of particular section of people and, therefore, it cannot be implemented is untenable. I am, therefore, of opinion that the Resolution No. 11 is to be permitted to be implemented. 35. The plaintiffs have questioned the legality of the Resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 20-3-1995. The meeting held on 20-3-1995 is a meeting which has been adjourned from 12-9-1994. Since, it was held after 30 days, a notice has also been sent enclosing the proxy forms to enable such of those shareholders who have purchased the shares subsequent to 12-9-1994 to participate in the meeting. The meeting being a continuation of the original meeting, the notice containing the same form of Resolution and explanatory statement has been stated in the notice and there is nothing improper to hold that there is no valid notice. By at one stretch, the learned counsel appearing for the plaintiff would argue that there is no necessity for giving notice and at another stretch, the learned counsel would argue that there is no proper notice. The plaintiffs are blowing hot and cold at the same time with regard to the notice sent for the meeting held on 20-3-1995. I am of opinion that it cannot be appreciated at all. The resolution to be passed and the explanatory statement of accounts were made known to the sharehold- ers to form an opinion whether they should or should not approve the proposal regarding the increase of the percentage state of the promoters by preferential offer up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 each in accordance with the guidelines dated 4-8-1994 of the SEBI, details of which are set out in the explanatory statement relating to this item. The wording used in the notice as well as the Resolution is stated as not exceeding. It does not necessarily mean that the minimum issue is 1,01,04,000; the maximum only is mentioned and, therefore, it is always open to the shareholders to reduce the same in the meeting after discussion. But the results of the meeting had disclosed that except the plaintiffs, none other have opposed this proposal to increase the shareholding. In the notice itself, it is mentioned that the proposal is subject to the guidelines of SEBI. Lock-in-period as also stated as five years. When the notice refers to the guidelines issued by the SEBI and the lock-in-period is also mentioned, the shares even if issued cannot be utilised by the person in whose name they have been issued to the detriment of other. 37. The learned counsel appearing for the defendants would also argue that the only Act which was restricting the capital issues is the Capital Issues Control Act, 1947 and this Act has been repealed by the Capital Issues Confirmation Repeal Ordinance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement cannot be said to be having a past record of shady nature. As far as the productive purpose is concerned, the learned counsel would argue that the beer project cannot be considered as a productive purpose and it is more so when the State in which it is to be implemented, has introduced total prohibition. The introduction of total prohibition by the newly formed State Government of Andhra Pradesh is subsequent to the notice. The previous Government has approved the scheme and has offered its assistance cannot be denied. The manufac- ture of beer in collaboration with the foreign country, is only productive in nature and it cannot be stated that the funds are not to be used for productive purpose. Therefore, the second requirement is also satisfied. As regards the source of funding, the promoters have indicated issuing of shares and collection of share capital through NRIs financial institu- tions including ICICI. Therefore, the third requirement is also satisfied. As regards the fourth requirement, the learned counsel appearing for the defendants vehemently argued that it is a misnomer to say that there is a family dispute between the two cousins which would stand in the way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can have their say alone. They cannot be permitted to nullify the effect of the Resolutions passed by the shareholders of the company. In this connection, when we consider the balance of convenience, it would also show that if recognition for these Resolutions is not given, vast majority of the shareholders of the com- pany will be prejudiced and hardship will be caused to them since, it is against their desire to pass the Resolutions whereas no prejudice will be caused to the plaintiffs if the Resolutions are allowed to be implemented. It is more so, when the plaintiffs are actually agitating not for upholding any of their right but to bring the interest of Mr. B.H. Kothari to limelight as contended by them in paragraph 13 of the plaint. The learned advocate for the defendants would describe the dispute between the plaintiffs and defendants as a proxy battle fought by Mr. B.H. Kothari. There is considerable weight for this argument of the learned advocate. For these reasons, I am of opinion that all the three Resolutions passed by the majority of shareholders have to be approved and permission has to be granted to implement them. In that view, the applications are ordered as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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