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TMI Blog2017 (11) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... d merely because’ they had not made payment under that process, it would be a paradox that they are refused allotment of shares. This is more so because the petitioners’ action in not applying through ASBA process would not and has not in any manner prejudiced any of the respondents, including respondents 4 and 5. In such view of the matter, it is of the firm opinion that W.P. deserve to be ordered and that the petitioners be allotted the shares applied for by them through Exhibits PI to P4, utilising the amounts paid by them through the demand drafts, which is now stated to be in the refund account maintained by the fourth respondent. Action of the company in transferring such high percentage to the reserves of the company, while not declaring a higher dividend, is in violation of the Companies (Transfer of Profits to Reserves) Rules, 1975 - Held that:- Even though the petitioners may have a case, going strictly by the terms of the relevant provisions, that the company ought not to have transferred such large percentage of its profits to general reserves without enhancing the rate of dividend, such action has only helped the financial condition of the company and has contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estor participation, especially of small investors in IPOs has impressed constant rise but being unwittingly chaperoned by corrupt and illegal practices forcing the market regulator Securities and Exchange. Board of India (SEBI) to sit up, take notice and to initiate number of reforms in protection of the trusting and often under informed small investor. One such reforms process developed by the SEBI for applying in an IPO is called the Applications Supported by Blocked Amount1 (ASBA), under which the investors application money in an IPO is protected and preserved until the shares are issued. 3. I have indited the short foreword as above since in these cases the operational realm of the ASBA process along with issues relating to General Reserves and Dividends of a public company have been presented for juristic inspection. 4. The pleadings and reliefs in both the writ petition relate to the investments made by the petitioner/s in Canfin Homes Ltd., a company registered under the provisions of the Companies Act. 5. I am .proceeding to dispose of these two writ petitions jointly because resolution of the issues in one case, namely W.P.(C}No.6106/2015, would go a long a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason and that it has no nexus to the object to be achieved, namely protection of the investors. 8. W.P.(C)No.6106/2015 has been filed by the petitioners seeking to quash the first condition in Exhibit P5 General Instruction for Investors , incorporated in the abridged Letter of Offer, that the applicants whose application amount exceeds ₹ 2 lakhs can participate in the issue only through the ASBA process. The. petitioners have also prayed for consequential reliefs against respondents 4 and 5 not to close the rights issue on 27.02.2015, as was proposed In Exhibit P5 and to compel respondents 1 to 3, namely, the Officers of the Securities Exchange Board of India, to Eecall the Letter of Offer issued by M/s.Canfin Homes LtdL and to deiete the first condition as mentioned above. 9. I notice that a counter affidavit has been filed on behalf of the fourth respondent and according to them, the conditions in the Letter of Offer, namely those contained in Section I - General - Definitions and Abbreviations, which mandate that all applicants, whose application amount exceeds ₹ 2 lakhs, shall participate in the issue only through ASBA process is designed to protect them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e corollary benefit to the issuer and its Registrar would be that the process of refund in case shares are not allotted could also be eliminated. 13. In the case at hand,, however, it is ironic is that what is intended to be for the benefit of the investor has now boomeranged against them as a detriment. The petitioners had applied for the Rights Issue offered by the fourth respondent and had remitted the funds required, namely ₹ 48,58,983/-, through demand drafts drawn from a bank enclosed with their applications. As far as the fourth respondent - the issuer of the rights and the fifth respondent - the Registrars to the issue are concerned, the entire amount required for the allotment of the shares in the names of the petitioners have been made available to them through the demand drafts. Normally therefore, nothing should have prevented allotment of the issue and the shares applied for by the petitioners. However, because of the specific term in Exhibit P5, that all applicants whose application amount exceeds ₹ 2 lakhs can participate in the issue only through the ASBA process, their demand drafts were not accepted and allotments were also refused. This is very iro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of allotment and that no such additional shares have been allotted. According to them, the refund of the amount of ₹ 1,07,750/- was by means of Refund Order Nos.10691 to 10693, which is now lying in the Rights Issue refund account with the HDFC Bank account. 16. Thus, the fourth respondent asserts that after refund of Rs,1,07,750/- as mentioned above, the balance available in the refund account is ₹ 47,51,403/- (excluding the demand draft charges of ₹ 10,947/- borne by the Company) is kept in the Rights Issue account of the Bank. The statement further says that the Board of Directors of the Company, at their 164th meeting held on 09.03.2015, has resolved that allotment of 10,583 number of equity shares of the Rights Issue be kept in abeyance pending final decision of this writ petition. 17. On an examination of the contents of the statement filed on behalf of the fourth respondent, it become indisputable that the equity shares applied for by the petitioners under the Rights Issue and the additional shares applied for by them have not been yet alloted and that the amounts expended by the petitioners for application of such shares through demand drafts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rves, even though the dividend not having been raised, can only add to the financial health of the company. He concedes that over the years the value of the shares of the company has escalated exponentially which also fortifies the fact that the company s action in maintaining a high reserve has helped it its long run. 21. The declaration of a proper dividend by a company under Section 205 of the Companies Act and transfer of profits to reserves under the Companies (Transfer of Profits to Reserves) Rules, 1975 are matters and decisions which are to be taken by the Board of Directors of the company. I notice that the company had taken decisions at the relevant time to transfer 50% or so of its profits to general reserves by maintaining the dividend at the rate of 25% in furtherance of an intention to create large reserves for the better financial health of the company. 22. The company has filed a statement wherein they say that the Board of Directors and the share holders had passed necessary resolutions before declaration of dividend in the relevant year. They. maintain that there is nothing in the Rule prohibiting the. company to transfer to thes1 reserves, a higher percenta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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