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TMI Blog2015 (9) TMI 1692X X X X Extracts X X X X X X X X Extracts X X X X ..... ority cannot opt for the right under section 397 398 of the Act 1956 to stall the functioning of the company, when the act of the management is in the interest of the company. Since there is a decision to purchase dryer costing around ' 100 crores, it can't be said that there is no need to raise fund. Therefore, the argument of the petitioners counsel saying that there is no need for raising fund has no merit. However since the respondents categorically mentioned that they will not invoke allotment of shares under B Class, the shareholding of the petitioners will not come down to 20% as stated by them, when the respondents have come forward saying that they will not allot any shares as B Class shares, there cannot be any more equity than this - here, in the case, the directors in the management indulged in all sorts of malafide acts and irregularities to dilute the aggrieved, therefore this cannot be applicable to the given facts of the case. There are no merit to stay the agenda for increase of authorised share capital of R1 Company, this Bench hereby rejects interim relief seeking stay of the Agenda over increase of authorised share capital and also over other int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, in fact P1, in principle, agreed to purchase that Dryer from Nestle, but by virtue of some issue, this machine lying idle with R1 for the last one year, in the back drop of it, R2 wants to raise funds to purchase the Dryer from Nestle, to which P1, presiding as Chairman in the Board Meeting, agreed for purchase of it, now the issue before this Bench is whether to buy it by raising equity financing or by debt financing. The petitioners counsel says when Rabobank is ready to give loan, why should company go for equity? That being a foreign Bank, it will provide loan by seeing the credibility of R2 Company that has earned credibility internationally, not by seeing the petitioners. It is a fact on record that P1 family is in financial crunch, therefore wanted to exit from the company. R2, being majority in the Board as well as in the company, desires to raise equity by rights issue, not by taking loan. Since R2 has been running the company with majority, it is the wisdom of R2 that prevails over the petitioners group in taking commercial decisions, such decisions cannot be put off by CLB, unless oppression and mismanagement is atleast prima facie found in the case. Let us see wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement against R2, R3-R6, without even consulting the petitioners (G Promoter Group) stopped payment to SADL of additional ₹ 2/- per litre from 1.9.2014 despite the petitioners group holds 49% shareholding in the company. On seeing such abrupt stoppage of payment to SADL, P1 on 18.9.2014 and 24.9.2014 informed R2 stating that Nestle Dryer Agreement and Tripartite Agreement got derailed; therefore. SADL would take 18 months to achieve Nestle quality milk for the baby food dryer. On which, R2 wrote a letter on 30.9.2014 that SADL is not adhering to its commitment under the milk supply agreement to supply the requisite quality of milk at a fair and competitive price. On seeing audacious attitude of R2, petitioners group placed three options before R2 - either for sale of petitioners shareholding to a third party or to go for an IPO or to sell their shareholding to R2/to buy back by R1. But so far nothing happened. In the Board Meeting held on 21.05.2015, the respondents categorically mentioned that procurement of dryer from nestle is likely to cost ₹ 95/- crores for enhancing the ability to process milk which will result into improvement of revenue in R1 company. On the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company to raise equity financing? Therefore, it is evident that this equity financing was taken as a device to bring down the shareholding of the petitioners below 25% by adopting Article Agreement entered in between the petitioners group and respondents group. In the Article Agreement, it is enumerated that when the petitioners do not subscribe to the shares offered by the company in proportion of the shareholding of the petitioners, in that event, Schreiber Group (R2) will be entitled to subscribe to the additional shareholding in the company to the extent not subscribed by the petitioners (G Promoters). For the purpose of acquiring of such additional shareholding. R1 shall offer to Schreiber Group equal number of shares with disproportionate voting rights (class B shares) which are not subscribed by G-Promoters. Comparing to equity shares of the company having a face value of ₹ 10A each, each B class share shall have face value of ₹ 1 but voting rights will be of the same as given to share having face value of ₹ 10. The petitioners submit the idea behind proposal for equity financing by the respondents is to allot shares not subscribed by the petitioners as B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilk products from R1 Company to ensure maximum utilisation of the company's facilities. Because of these additional contractual comforts, R1 was able to obtain additional loan from Rabo India Finance Pvt. Ltd. and Cooperative Centrale Raiffeisen Boerenleenbank B.A. The counsel submits that so far not even a single meeting or a decision has been taken by the board, which has not been unanimous, except for the decision to undertake rights issue taken in the board meeting held on 16.07.2015. In the year 2011, Nestle approached R1 Company for manufacturing a specific quality of milk powder. Since the company did not have required infrastructure to procure the required quantity of fresh milk, the company was in fact not inclined under take the project to procure the required fresh milk. Then it is P1, who persuaded R1 Company to engage with Nestle eyeing profit out of it, because P1 is the man supplying milk to R1 Company. Above this, the petitioners being 49% shareholders, they get benefit even in R1 Company as well. On being insisted by P1, board meeting was held on 29.03.2011, wherein P1 assured that supplying the quality milk for project Sahara will be the responsibility of SADL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, then R2 shareholding will only go up to 60.80% and the petitioners shareholding will come to 39%. Therefore, there is no merit in the argument of the petitioners saying that their shareholding would come down below 20%. 10. The respondents counsel further submits that R1 company will hold only AGM only for increase of authorised share capital not for passing any resolution over rights issue, therefore, seeking a relief to stay rights issue is premature. As to increase of capital, it is the shareholders who have to take a decision hence if at all the petitioners have any grievance over increase of authorised share capital, the same could be placed in the AGM to be held on 23.09.2015, hence, no interim relief be passed in this case. 11. In view of the submissions heard from either side, now the point for consideration is- 1. Whether any stay is to be granted over an item for increase of authorised share capital in the AGM to be held on 23.09.2015. 12. On seeing the facts of the case, it is evident that the respondents are in management they have been continuing in the management without any disputes for last several years, the only objection to the petitioners now is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the management indulged in all sorts of malafide acts and irregularities to dilute the aggrieved, therefore this cannot be applicable to the given facts of the case. 17. The petitioners counsel relied upon Standard industries Ltd. Ors. v. Mafatlal Services Ltd. Ors. (1994) 80 Comp Cas 764 when no benefit comes to the aggrieved from the Rights Issue forced on them, the same shall be considered as an act lack of probity and fair play. 18. In the case supra, I believe the facts in Mafatial are different from the present case, in Mafatial, the issue is to raise funding to a subsidiary which has no direct monetary gain to the holding Company, therefore CLB arrived to a conclusion that action of the Respondents suffers from lack of probity and fair play, here, the funding is to the company itself and P1 in principle agreed for purchase of the Dryer, therefore Mafatial facts are not applicable to it. 19. The petitioners counsel relied upon Tea Brokers (P) Ltd. Ors. v. Hemendra Prasad Barooah (1998) Comp LJ 463 (Cat) to say that when there is no urgency for rights issue, if it is solely for diluting the petitioners, the same shall be declared void. 20. In the case supr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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