Company Law Board
In Re: Mare Steel Castings Pvt. Ltd. vs Unknown on 22 December, 1992
Equivalent citations: [1994]79COMPCAS485(CLB)
ORDER
S. Balasubramanian, Member
1. These two petitions filed by the petitioner-company under the proviso to Section 79(2)(ii) of the Companies Act, 1956 (hereinafter referred to as "the Act"), seeking sanction of this Bench, to issue shares at a discount, are being disposed of by a common order, since the facts and circumstances mentioned and the prayer sought are the same.
2. Shri C. Mohan, practising company secretary, has been heard in both the matters.
3. The facts of the case are that the petitioner-company was incorporated in 1976 by Shri M. Sivasankar, the present managing director. The petitioner was the first to establish a steel casting unit in the State of Kerala and Shri Sivasankar, promoter, is said to have more than two decades of experience in steel foundries. The Kerala Financial Corporation and the State Bank of India financed the petitioner to acquire the machinery and to erect the plant. Although the petitioner was registered in 1976, the production could commence only in 1982. The petitioner had to face all sorts of problems right from the beginning, escalation in costs, loss of Rs. 1 lakh paid as advance for machinery, delay in installation of machinery, delay in installation of arc furnace and difficulties and delay in obtaining power supply were some of the problems. In the very same year, i.e., in 1982, the Kerala State Electricity Board imposed a drastic power cut of 80 per cent. This made the petitioner's unit crippled, production low and the resultant, losses heavy. The situation was aggravated further due to delay in realising dues.
4. In 1984, the State Bank of India jointly with the Kerala Financial Corporation undertook a technical study on the basis of which, a rehabilitation scheme was implemented by the petitioner in 1985. But the scheme failed to work for want of adequate finance and the State Bank of India one of the major financiers responsible for the petitioner's establishing the unit, decided to call up the advance and recover the dues by filing a suit, against the petitioner-company in the year 1986. However, subsequently in 1988, the petitioner obtained another revised project report and submitted it to the bank, which it decided to implement in April, 1990. A copy of the report has been annexed to the petition herein, which envisaged several proposals to restructure the petitioner's unit. The State Bank of India after study has found the proposal technically feasible and economically viable. But, it has imposed certain conditions like enhancing the working capital, installing modern equipment and associating a new group of investors who will invest additional capital and take over the management of the unit.
5. It is in the light of the above that the petitioner's present management has invited a new group of investors and have negotiated with them for additional capital investment and to take over the management. In view of the heavy accumulated losses, the petitioner has resolved at its extraordinary general meeting held on June 7, 1991, to issue, subject to sanction of the Bench, 1,25,000 equity shares of Rs. 10 each at a discount of Rs. 2.50 per share. Subsequently, finding the resources inadequate it has again on March 23, 1992, at its extraordinary general meeting proposed to issue another 1,00,000 shares of Rs. 10 each at a discount of Rs. 2.50 for these shares subject to sanction by this Bench.
6. Therefore, the petitioner has approached this Bench with these two petitions seeking sanction.
7. Shri C. Mohan appeared on behalf of the petitioner-company and reiterated the facts and circumstances under which the shares were resolved to be issued at a discount. As per the proviso to Section 79(2), for issue of shares at a discount of more than 10 per cent., there should be special circumstances to do so. In the present case, the company has been incurring losses right from the beginning and the accumulated loss as on March 31, 1991, was Rs. 61,15,840. The board of directors of the company in all seriousness tried to rehabilitate the company and the State Bank of India has also viewed the proposal as technically feasible and economically viable. The new group of investors represented by Shri V.C. Anthony has agreed to invest Rs. 17 lakhs towards the equity capital of the company and has by March 31, 1992, already invested Rs. 15 lakhs (which has been kept as share application money) thus indicating the genuineness and seriousness with which the company has embarked upon rehabilitation. I am, therefore, of the view that there is adequate justification in the company's prayer for sanctioning the issue at 25 per cent. discount. Accordingly, in the interest of the petitioner-company, its members and creditors, I accord sanction to the petitioner-company to issue 1,25,000 and 1,00,000 shares respectively of Rs. 10 each proposed to be issued at a discount of Rs. 2.50 per share as approved by the petitioner's extraordinary general meetings held on June 7, 1991, and March 23, 1992.
8. Accordingly, both the petitions arc hereby allowed, sanctioning the issue of shares at a discount as proposed by the petitioner.
9. The said shares totalling in all 2,25,000 shall be issued within two months from the date of receipt of the order.