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TMI Blog2019 (9) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... otment of shares to the Petitioners by converting the debt into equity. The contention of Respondents that it is Respondent No. 2 who gave money as unsecured loans. However. Petitioners got certain part of debt converted into equity and allotted the shares to themselves. This is the main allegation made by Respondents 2 3 against petitioners. This needs to be considered in the main petition at the time of final hearing. When Company is in urgent need of money, the only alternative with the Company is to go for rights issue. The other aspects raised by the Petitioners that there is no need to go for rights issue are all matters to be considered at the time of final hearing. At present, the offer is also made to the Petitioners and it is for the Petitioners either to subscribe or not to subscribe for the rights issue - At present there is no need to grant any interim reliefs. The main petition itself is ripe for hearing. Therefore, at present we do not consider any ground to grant any interim relief in favour of petitioners. Even if rights issue is allowed to continue and allotment is to be made as per issue, it is subject to the result of the main petition. So interest of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue which was going to be closed on the next day i.e 11.05.2019. The Learned Counsel for Petitioners contended, the Respondents are trying to take advantage of the rights issue and that Petitioners will suffer irreparable injury. It is true, the Company has gone for rights issue to meet the liabilities. Offer was also made to the Petitioners to subscribe for rights issue proportionately to their shareholding. This Tribunal allowed the process to be completed but allotment of rights issue to the Subscribers was ordered to be kept on hold until further orders. (2) The Counsel for Respondents brought to the notice of the Tribunal on 10.05.2019 that Petitioners gave notice to the Company to call for EGM for removing Respondents 2 3 as Directors. It is the apprehension of the Respondents that if rights issue is kept on hold then Petitioners being majority shareholders can remove Respondents 2 3 as Directors. Therefore, Respondents sought some direction to the Company not to hold EGM for the removal of the Directors. This Tribunal passed orders on 10.05.2019 directing Respondent No. 1 Company not to call for EGM for the purpose of removal of Respondent Nos 2 3 as Directors. Ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al allotment made to themselves without actually bring in the monies, in the sense that illegal allotment of shares to themselves by converting the unsecured loans of Respondent No. 2 into equity for themselves and also as part without any consideration. Hence, Respondent No. 1 Company was left with no other option but to raise funds through rights issue. The Board of Directors issued rights issue offer letter to all the shareholders inviting them to subscribe to the shares of Respondent No. 1 Company. Instead of bringing in the amounts, the Petitioners issued notice to remove Respondents 2 3 as Directors of Respondent No. 1 Company and appoint themselves as Directors on 29.04.2019 under Section 100 (3) of the Companies Act, 2013. (2) It is further case of Respondents that as per Section 100 (3) of the Companies Act, 2013 the Respondent No. 1 was to call for EGM within 45 days on receipt of notice from Petitioners i.e by 14.06.2019. The last date for subscribing to the rights issue was 11.05.2019, which was done by the Petitioners with an intention to stall the rights issue, to remove Respondents as Directors and to appoint themselves as Directors by allotting shares to themse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners with false promises that they would purchase the shares of the Petitioners @ 20/- per share and that they have to resign as Directors. The Learned Counsel contended that Petitioners resigned as Directors wef 04.03.2017 and that Respondents 2 3 failed to honour the promise. The Learned Counsel for Petitioners would contend that Petitioners together are holding 56.971% Equity Shares of 1st Respondent Company and that they are majority shareholders. Counsel further contended that Respondents 2 3 mismanaged the affairs of the 1st Respondent Company and did not give any notice to the Petitioners for AGM held for the years 2016-17 2017-18. They were also not given the audited financial statements for those years. 6. The main objection raised by the Learned Counsel for Petitioners is that when there is no business in the Company, there is no need to go for rights issue. Counsel contended that Respondents 2 3 proposed rights issue which is defective and that rights issue cannot be allowed to be proceeded. There is no consent of the shareholders for increasing of Authorised Share Capital. The Counsel contended that Petitioners issued notice for convening of EGM, yet it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty charges. In order to meet these liabilities, the Company had gone for rights issue and Petitioners did not respond to the same. The Petitioners did not subscribe to the rights issue. Procedure is strictly followed in rights issue and that petitioners are still to remit the value of the shares allotted to themselves. The Learned Counsel for Respondents relied on the following judgements:- i) Hon'ble Supreme Court judgement: in the matter of Needle Industries (India) Ltd Ors. vs. Needle Industries Newey (India) Holding Ltd. ii) Hon'ble Supreme Court judgement: in the matter of Shanti Prasad Jain v. Kalinga Tubes Ltd iii) Hon'ble Mumbai High Court judgement: in the matter of Jetu Jacques Taru Lalvani and Anr vs. JBA Printing Inks Limited iv) Hon'ble CLB order in the matter of Shivnath Rai Bajjaj vs. Nafabs India (P) Limited and another reported in (2002) 1 Comp LJ 152 CLB. 8. The Petitioners claim the following interim reliefs. (a) To stay the proposal for issue of shares of the 1st Respondent Company on right basis. (b) To appoint Advocate Commissioner to make inventory of all the records of 1st Respondent Company to ensure no further misappr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n petition. There was correspondence between petitioners and Respondents with regard to allotment of shares to the Petitioners by converting the debt into equity. The contention of Respondents that it is Respondent No. 2 who gave money as unsecured loans. However. Petitioners got certain part of debt converted into equity and allotted the shares to themselves. This is the main allegation made by Respondents 2 3 against petitioners. This needs to be considered in the main petition at the time of final hearing. Respondents 2 3 also filed documents to show that notices were issued to the Company for repayment of loans. Thus, creditors are pressurising to discharge the debt. The contention of Respondents No. 2 3 is that Company has gone for rights issue only to raise funds for discharging the debt and other liabilities such as electricity charges. The contentions of the Petitioners is that there is no need to go for rights issue. The particulars of rights issue are not correct. However, Respondents 2 3 filed evidence at page Nos. 122 to 156 about demand made by the creditors. Thus, material is placed by-Respondents 2 3 that creditors were demanding the company to discharge th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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