1984 (8) TMI 293 - HC - Companies Law

Court validates share acquisition by Swadeshi Mining, rules in favor of deemed approval under Companies Act

Swadeshi Polytex Ltd. Versus Swadeshi Mining & Mfg. Co. Ltd.

The court concluded that the acquisition of 1,26,000 equity shares by Swadeshi Mining from Polytex was valid as the Central Government did not communicate ... Shares warrants and entries in register of members, Restriction on acquisition of certain shares, Powers of Court to rectify register of members Issues Involved:1. Validity of the acquisition of 1,26,000 equity shares by Swadeshi Mining.2. Necessity of prior approval from the Central Government under Section 108A.3. Interpretation and application of Sections 108A, 108E, 108B, 108C, and 108F of the Companies Act, 1956.4. Deficiency in the application for approval under Section 108A.5. Necessity of the Central Government as a party in the proceedings.6. Requirement to call for the record from the Central Government.Detailed Analysis:1. Validity of the acquisition of 1,26,000 equity shares by Swadeshi Mining:The principal question was whether the acquisition of 1,26,000 equity shares of Polytex by Swadeshi Mining from the Tax Recovery Officer was valid. The court concluded that the acquisition was valid since the Central Government did not communicate any refusal within the stipulated 60 days as required under Section 108E of the Companies Act, 1956. Therefore, the acquisition was presumed to have been approved.2. Necessity of prior approval from the Central Government under Section 108A:The court examined Section 108A, which imposes restrictions on the acquisition of shares exceeding 25% of the equity share capital of a company without prior approval from the Central Government. Since Swadeshi Cotton Mills already held more than 25% of Polytex's shares, any additional acquisition by Swadeshi Mining required such approval. The application for approval was made on March 12, 1981, but no refusal was communicated within 60 days, thus presuming approval under Section 108E.3. Interpretation and application of Sections 108A, 108E, 108B, 108C, and 108F:- Section 108A: Restricts acquisition of shares exceeding 25% of the equity share capital without prior approval.- Section 108E: Presumes approval if no refusal is communicated within 60 days.- Section 108B: Requires intimation to the Central Government for the transfer of shares by a body corporate holding 10% or more of equity shares.- Section 108C: Places restrictions on the transfer of shares of foreign companies.- Section 108F: Provides penalties for contravention of Sections 108A, 108B, or 108C.The court found that the provisions of Section 108E were clear and that the Central Government's failure to communicate refusal within 60 days resulted in presumed approval.4. Deficiency in the application for approval under Section 108A:The appellant argued that the application was deficient as it did not include the names of the trustees of the two trusts owning the shares. However, the court found that paragraph 10 of Form 7C only required the details of the persons from whom the shares were proposed to be acquired, which in this case was the Tax Recovery Officer. The Central Government's letter dated May 7, 1981, seeking additional information did not constitute a deficiency in the application.5. Necessity of the Central Government as a party in the proceedings:The court held that the Central Government was not a necessary party in the proceedings under Section 155, as no relief was sought against it. The presence of the Central Government was not required for a complete adjudication of the matter.6. Requirement to call for the record from the Central Government:The court found that all relevant and necessary correspondence was already filed, and there was no need to call for the entire record from the Central Government. The request for sending for the record was not pressed during the arguments before the learned company judge.Conclusion:The court upheld the judgment of the learned company judge, directing Swadeshi Polytex Ltd. to correct its register of members by deleting the names of the current holders of the disputed 1,26,000 equity shares and substituting the name of New Bank of India, Kanpur. The New Bank of India was also granted voting rights for these shares at the upcoming extraordinary general meeting. The special appeal was dismissed with costs.