2001 (4) TMI 932 - Board - Companies Law

Companies Act Petition: Right Shares Issue Upheld, Chairman's Authority Questioned

The petition under section 397/398 of the Companies Act, 1956 against a banking company was deemed maintainable. The decision to issue right shares was ... - Issues Involved:1. Maintainability of the petition under section 397/398 of the Companies Act, 1956 for a banking company.2. Need for additional capital and the issuance of right shares.3. Authority of the Chairman to withdraw a resolution.4. Applicability of Articles 45-47 of the company's Articles of Association.5. Allegations of subsequent events post-filing of the petition.6. Appointment of an independent Chairman for the EOGM.Summary:1. Maintainability of the Petition:The core issue was whether a petition u/s 397/398 of the Companies Act, 1956 could be filed against a banking company. The Board concluded that there is no bar in filing such a petition against a banking company. The judgment referenced multiple cases supporting this view and clarified that the discretionary power of the court to wind up a company on just and equitable grounds under section 433(f) of the Companies Act applies to banking companies, making the petition maintainable.2. Need for Additional Capital:The Board examined whether the decision to issue right shares was necessary. It was determined that the decision to issue right shares was a managerial one, approved by the RBI, and not within the purview of judicial scrutiny unless it was shown to be with an ulterior motive. The petitioners failed to establish that the decision to issue right shares was oppressive or detrimental to the shareholders' interests.3. Authority of the Chairman to Withdraw a Resolution:The Board found that the Chairman of the meeting had no authority to unilaterally withdraw a resolution once it was placed before the general body. It was held that the Chairman's duty is to ensure orderly conduct of the meeting and ascertain the will of the shareholders. The unilateral withdrawal of the resolution by the Chairman without members' consent was deemed an act of oppression.4. Applicability of Articles 45-47:The Board analyzed Articles 45-47 of the company's Articles of Association and concluded that general body approval was necessary only when authorized capital was increased or shares were issued with differential rights. The issuance of right shares with the right to renounce did not require general body approval, aligning with section 81(1) of the Companies Act.5. Allegations of Subsequent Events:The Board held that subsequent events could be considered in a section 397/398 petition to mold the relief to be granted. The petitioners' allegations regarding the misuse of bank funds for purchasing shares were noted, but the Board refrained from detailed examination due to insufficient material and ongoing RBI scrutiny.6. Appointment of an Independent Chairman for the EOGM:The petitioners requested the appointment of an independent Chairman for the EOGM, citing lack of confidence in the current Chairman. The Board decided to appoint an observer, Shri C.R. Mehta, former member of the CLB, to oversee the proceedings and report back. The Bank was directed to ensure proper conduct of the meeting and avoid using its resources for proxy collection.Conclusion:The petition was disposed of with directions to allow the Bank to proceed with the issuance of right shares as approved in the Board meeting on 8-8-2000. The Board emphasized that the oppressive act of the Chairman in withdrawing the resolution did not warrant cancellation of the right issue, considering the overall benefit to the shareholders and the company. No costs were awarded to the Bank.