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TMI Blog2006 (2) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... their servants, agents, assigns or howsoever otherwise from taking any step for diminishing or decreasing the shareholdings of the petitioners in the defendant company being 18.26 per cent of the total issued, subscribed and paid-up share capital of the defendant company in any manner whatsoever. 2. Going by the petition being grounds of the notice of motion the grievance of the petitioners is against the decision of the board of directors to issue rights shares and further against any future attempt or action to increase or decrease the share capital aiming to disturb the pattern of shareholding of the existing shareholders. Though, in the plaint, various reliefs have been claimed, however, at the present moment. I am not concerned wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in source. As such there is no need to increase further share capital. Moreover, there is no detailed project or scheme as to how the increased share capital will be utilized and despite having sufficient funds in the hands of the company why further fund is required. Therefore, the decision of the directors to issue rights shares to the existing shareholders without any right of renouncement of any share is nothing but to marginalize the petitioners who have a considerable extent of shareholding. In view of absence of right of renouncement the unsubscribed shares might be issued to the chosen persons of the directors so that in the office of the board they can perpetuate and mismanage as long as possible. According to him, the aforesaid fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing rights shares on the basis of 1:2 ratio. Therefore, all the exciting shareholders will have chance to subscribe to these right issues and with this process it is expected that a sum of Rs. 20 lakhs can be mopped up. It is true that there are funds in the hands of the company for granting loan to the parties but this cannot be utilized as loan as the company is receiving fixed income from it by way of interest. How the company can be effectively run with profit is the absolute domain and discretion of the Board of Directors. 6. He has drawn my attention to various paragraphs in affidavit-in-opposition and submits that the object to issue right shares is neither mala fide nor for personal interest of the Directors. He, on the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ad interim stage observing that the increase of share capital may not be necessary as it is sought to be done by issuance of fresh equity shares but actual picture will come up when the affidavits will be filed. However, I did not grant any order of injunction restraining the respondents to issue shares to increase share capital. But I made it clear that the plaintiffs would be at liberty to subscribe the shares in accordance with the rules as permissible that will be without prejudice and all the decisions shall be abided by the result of this application. Now, at this stage, question is after having affidavits whether the aforesaid interim order should be continued or further interim order is required to be passed or this interim orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares are issued in the larger interest of the company, the decision to issue shares cannot be struck down on the ground that it has incidentally benefited the Directors in their capacity as shareholders. We must, therefore, reject Shri Seervai s argument that in the instant case, the Board of Directors abused its fiduciary power in deciding upon the issue of rights shares." (p. 1340) 10. Therefore, their Lordships have discussed and summarized all the decisions of various Courts viz. English Courts, Australian Courts as well as Canadian Courts and also the Privy Council and lastly the earlier decision of the Supreme Court and thereafter the aforesaid principle of law have been deduced. 11. I do not find any other authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one right share would be issued as against two existing shares. So if this is distributed amongst all the shareholders as it appears from the notice then the position of the shareholding or extent of the same will not be changed unless, of course, the plaintiff does not opt to reduce the same. But one thing remains as it has been stated in the notice, that there is no right of renouncement. In absence of the same there may be a chance of the allotment of unsubscribed shares by the existing shareholders to other persons. 14. Therefore, having regard to the explanation given in the affidavit-in-opposition I think that the decision to raise fund is for the interest of the company and to augment the income and extend the business. The peti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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