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TMI Blog2013 (12) TMI 1717X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Companies Act, 1956 on January 20, 1988, under the name and Style of Digital Equipments (India) Ltd. It was a 51 per cent, subsidiary of Digital Equipments Inc., a United States based multinational company. With the worldwide amalgamation of Digital Equipment and Compaq and later, on the amalgamation of Compaq and Hewlett-Packard, respondent No. 1 company acquired its present name as M/s. Hewlett-Packard Global Soft Ltd. The registered office of the company is situated at 39/40, Electronics City, Hosur Road, Bangalore, Karnataka. The company was listed till the year 2004 with the stock exchanges, i.e., the National Stock Exchange and the Bombay Stock Exchange. Thereafter, it was delisted from the stock exchanges. In the year 2004 an open offer (first open offer) was made by Hewlett-Packard Leiden BV, the parent company of the respondent-company for purchase of shares of the shareholders of respondent No. 1 in accordance with the Delisting Guidelines. After the first open offer, HP Leiden BV became the 98 per cent shareholder of the respondent-company. After the first open offer, the remaining shareholders of the company were provided a second opportunity (second open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in this background, the petitioner filed a petition under sections 397 and 398 of the Act for declaration that the special resolution for consolidation of equity share capital passed in the annual general meeting is ultra vires, illegal and void and that all consequent actions thereon is void and they are not binding on the company, to restore the name of the petitioner along with Sri Damjishah on the register of members of the company and for other consequential reliefs. 3. The main ground urged was the consolidation of share capital into shares of an exceptionally huge value of ₹ 2,50,000 per share is not only uncommon but also has the effect of driving out and wiping out the minority shareholders completely. The effect of the proposed resolution takes away the membership of the petitioner unfairly, which would be ultra vires of the memorandum and articles of association of the company as well as it is in contravention of the provisions of the Act. It is a mala fide action, the sole object being to drive out the petitioner from the company. 4. The company also has filed a detailed statement of objections to substantiate their action. The Company Law Board after hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital proposed by the special resolution wipes out a class of shareholders namely the non-promoter shareholders and this, according to the objectors, is unfair and inequitable. 6. In the event of the consolidation of the share capital, any fractional entitlements, which arise from such consolidation should be aggregated and transferred to a trustee and the resultant shares sold to the person determined by the board of the company. The company had strictly complied with the provisions of the Act and the articles of association. When consolidation is legally permissible, all the consequences that flows from it are legally protected. There is no unfairness in the impugned consolidation, in order to invoke the provisions of section 397 of the Act. Out of 7,200 independent shareholders, only 13 shareholders were present in the general meeting out of which 9 voted in favour of the resolution. The process of consolidation approved by the majority shareholders at the extraordinary general meeting is legally sustainable and not liable to be declared as illegal and therefore, the Company Law Board was of the view that the petitioner is not entitled to any of the relief sought by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on nominated by the board in this behalf), in trust for the members so entitled to the said fractions in proportion to their respective entitlements. The directors (or such person or persons, as the case may be) may, on behalf of those members, sell the shares resulting from the consolidation of the fractions at such price and on such terms as the Board may deem fit to any person as the Board may deem fit and distribute the net proceeds of the sale in due proportion among those members, and the directors may authorise such or some person to execute the instrument of transfer of the shares to, or in accordance with the directions of, the purchaser. The transferee shall not be bound to see the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale. This amendment to the articles of association was made on September 19, 2005. Subsequently, in the annual general body meeting held on July 28, 2006, the overwhelming majority resolved that pursuant to the provisions of section 94(1)(b) of the Act and other applicable provisions thereof, if any, consent of the company be and is here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act deals with capitalisation of profits and issue of bonus shares and if the bonus shares allotted is fractional, how it should be dealt with. It has no application with consolidation of a share capital. Therefore, it cannot be said that article 62A is contrary to law. 11. Learned counsel relied on section 9 of the Companies Act and contended that the provisions of the Act shall have effect, notwithstanding anything to the contrary contained in the memorandum or articles of association of the company or in any agreement executed by or in any resolution passed by the company in general body meeting or by its board of directors. The provisions contained in the memorandum and articles of association, agreement or resolution to the extent, to which these provisions of the Act apply are all void as the case may be and therefore, he contended that the said amendment being contrary to the Companies Act is void. However, he failed to point out the specific provision of the Companies Act, which is contrary to the aforesaid articles of association. On the contrary, section 94(1)(b) expressly provides for consolidation of shares and for increase in the value of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso between members inter se in relation to their rights as such members. Therefore, the parties are bound by such contractual obligations. Section 9 of the Companies Act provides that save as otherwise expressly provided in the Act, the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company and that any provision contained in the memorandum and articles shall, to the extent to which it is repugnant to the provisions of the Act, become void. 14. There was no quarrel with the said proposition. As point out earlier, the action of the company in fact is in accordance with the provisions of the Act or section 94(1)(b) and not contrary to any of the statutory provisions. 15. In the case of Cricket Club of India Ltd. v. Madhav L. Apte reported in [1975] 45 Comp Cas 574 (Bom), dealing with the similar situation at paragraph No. 23 has held as under (page 586): It is impossible to read the expression 'provisions of this Act' in section 9 as indicative merely of the express provisions and exclude the meanings which have to be read in the provisions of the Act by the rule of necessary implication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ijayan Rajes v. MSP Plantations P. Ltd. reported in [2009] 151 Comp Cas 413 (Karn), dealing with the act of removal of the appellant from the board of directors. They went into the question as under (page 430): ... though is an act permitted in law, and in consonance with the provisions of the Act followed by a resolution of the reconstituted board to redeem all preference shares and for the very purpose allotting equity shares of an equal number in favour of only two of the preference shareholders and utilising the very amount for redeeming the shareholding of the petitioners, all necessarily leading to an inference that the transaction are being used as a device to throw out the appellants-petitioners from the membership of the company. To constitute an act of oppression, the question is not so much as to whether the affairs of the company, are being conducted in consonance with the provisions of the Act or not, but even while so doing, the power and advantage of holding majority shares in the company is used by the majority shareholders for the purpose of causing prejudice to the minority shareholders. 20. In the instant case, having regard to the fact that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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