Calcutta High Court
Rajiv Garg & Ors vs The Waxpol Industries Ltd. & Ors on 6 April, 2011
Author: I. P. Mukerji
Bench: I. P. Mukerji
APOT No. 134 of 2011
ACO NO.37 OF 2011
IN THE HIGH COURT AT CALCUTTA
Original Jurisdiction
RAJIV GARG & ORS.
Versus
THE WAXPOL INDUSTRIES LTD. & ORS.
BEFORE:
The Hon'ble JUSTICE I. P. MUKERJI
Date : 6th April, 2011.
Mr. S.N. Mookherji, senior advocate,
Mr. Ravi Kapur,
Ms. M. Bhutoria, Ms. K. Banerjee...for Appellants.
Mr. R. Banerjee, Ms. S. Choubey...for respondent No.1.
Mr. K. R. Thakkar, Mr. S. Prasad...for respondent no.7.
The Court : Order in terms of prayer [a] of the petition. By consent of the parties, this appeal and application are being disposed of today, dispensing with all formalities and on the existing papers.
This is an appeal against the order of the Company Law Board made on 24th March, 2011 in CP No.258 of 2011. The Company Law Board refused any interim order to the appellants/petitioners.
A substantial ground taken in this appeal is that although there is discussion of the rival cases of the parties, the impugned order is lacking in reasons. Whatever reasons have been given in the order are most insupportable.
Two fundamental grounds have been taken by the appellants. The Company proposes to do some business in Srilanka as a joint venture business with a collaborator or partner. The decision to do such business was taken as a special resolution. It is said that the Company was required to disclose "all material facts with 2 regard to such business under Section 173[2] of the Companies Act, 1956". But that information was not there in the notice convening an extra-ordinary general meeting for that purpose issued on 24th December, 2010. Such information was lacking in the explanatory statement also.
The next point taken by them is with regard to the resolution taken in the said meeting for allotment of equity shares on preferential basis.
It is submitted before me that such allotment is in violation of Section 81[1A] of the Companies Act, 1956 read with Unlisted Public Companies Preferential Allotment Rules, 2003. It is submitted that in the said resolution no price was mentioned as is required under the said rules. Furthermore, no time limit for such allotment is mentioned. According to the appellants a share of the value of Rs.60/- has been sold for Rs.20/-.
The appellants are highly aggrieved by the refusal of the Company Law Board to pass an interim order. The Company Law Board recorded the following :
"As to issue and allotment to the respondents themselves is concerned, since the members in the EOGM must have already made allotment in favour of the directors mentioned in the explanatory statement, it cannot be undone at the interim stage. Here in a petition under Section 397 & 398 of the Companies Act, the parties have to prove not only violations of the provisions but also the prejudice to the members by such violation."
It is submitted that such order was passed on assumption. Moreover, members cannot allot shares.
On the other hand, Mr. Banerjee, learned counsel for the respondents submitted that the petitioners have not been in the forefront of the Company for a very long time. They have accepted an earlier reduction of share capital. They have been enjoying the dividend paid to them. This action is just to harass the persons in control of the Company.
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I am of the opinion that under the said Act the Company was required to make a detailed disclosure about its investment in Srilanka. Its omission to name the collaborator or the amount of investment or projected investment in the said notice and explanatory statement amounts to non-disclosure under the Act, in my judgment. However, shareholders have approved this resolution by the required majority. But, I make it clear that such investment in Srilanka will abide strictly by the orders to be passed in the Sections 397 and 398 proceedings.
Furthermore, I am of the opinion that there is some substance in the other argument of the appellants. There was some obligation of the Company under Section 81[1A] of the Companies Act read with the said Rules. I do not find any indication of price of the shares or the date of completion of the allotment. The question of under valuation of the shares has to be gone into in the Section 397, Section 398 proceedings.
Therefore, this appeal is disposed of by directing the respondent- beneficiaries of the equity shares allotted on preferential basis not to claim any right on the basis of such preferential allotment till the disposal of the Sections 397 and 398 proceedings.
I request the Company Law Board to dispose of the Sections 397 and 398 proceedings preferably within a period of three months from date.
All points are kept open before the learned Tribunal.
Accordingly, the stay application and the appeal both are disposed of. All parties concerned are to act on a signed photocopy of this order on the usual undertakings.
(I. P. MUKERJI, J.) pkd. Asstt.Registrar[C.R.]