2007 (1) TMI 619 - Board - Companies Law

Court upholds share allotment to IOC, orders transfer to petitioners at fair price, sets compliance terms.

Chatterjee Petrochem (Mauritius) Company, Winstar India Investment Company Ltd., India Trade (Mauritius) Ltd. and Chatterjee Petrochem (India) Pvt. Ltd. Versus Haldia Petrochemicals Ltd. and Ors.

Chatterjee Petrochem (Mauritius) Company, Winstar India Investment Company Ltd., India Trade (Mauritius) Ltd. and Chatterjee Petrochem (India) Pvt. Ltd. ... Issues Involved:1. Allotment of shares to IOC.2. Non-registration of 155 million shares transferred by WBIDC to the petitioners.3. Refusal of WBIDC/GoWB to transfer the balance shares to the petitioners.4. Non-handing over of the management to the petitioners.5. Appointment and continuance of the 16th respondent as the Managing Director.Issue-Wise Detailed Analysis:1. Allotment of Shares to IOC:The petitioners challenged the allotment of shares to IOC on multiple grounds including non-disclosure of certain understandings between IOC and WBIDC/GoWB, inducement by misrepresentation, and violation of Article 47 of the Articles of Association (AoA) of HPL. The court found that the allotment was approved by the EOGM and that the terms proposed to IOC and agreed to by IOC alone came up for approval. The court held that the non-disclosure of discussions between WBIDC and IOC was not fatal to the resolution as the shareholders were considering only the terms approved by the Board. It was also determined that the circular resolution route should have been avoided, and the matter should have been discussed in a regularly convened meeting of the Board. However, the court upheld the allotment of shares to IOC, noting that the petitioners' consent was obtained by misrepresentation that they were the owners of 155 million shares.2. Non-Registration of 155 Million Shares Transferred by WBIDC to the Petitioners:The court examined whether the issue of non-registration of 155 million shares was in the affairs of the company. It was found that the company was directly involved in the matter as it had sought approval from IDBI for the registration of transfer and had discussed the matter in board meetings. The court held that the transfer of 155 million shares was concluded on 8th March 2002, and the petitioners had legitimate expectations to seek registration of the shares in their names. The court directed the petitioners to pay the balance consideration of Rs. 125 crores to WBIDC, and upon payment, the shares would be deemed to have been dematerialized and transferred in the name of the 4th petitioner.3. Refusal of WBIDC/GoWB to Transfer the Balance Shares to the Petitioners:The court found that the transfer of the balance shares held by WBIDC was in the affairs of the company. It was noted that GoWB/WBIDC had committed to transfer their shares by a letter dated 17.12.2004 and the agreement dated 14.1.2005. The court observed that the decision to defer the disinvestment was due to the petitioners' insistence that no shares should be allotted to IOC. The court held that the petitioners had the right to require WBIDC/GoWB to disinvest their 520 million shares in favor of the petitioners, especially when the IOC allotment was upheld. The price payable for the 520 million shares would be the fair price determined by an independent valuer or Rs. 28.80 per share, whichever is higher.4. Non-Handing Over of the Management to the Petitioners:The court did not specifically address this issue separately, but it was implied that with the acquisition of the shares held by WBIDC, the petitioners would gain control of the management of the company. The court directed that the petitioners would take control of the day-to-day management of the company upon payment of the consideration for the 155 million shares.5. Appointment and Continuance of the 16th Respondent as the Managing Director:The court found no scope to interfere in the appointment of the 16th respondent as the Managing Director. It was noted that the appointment was unanimously approved by the board, including the nominees of the petitioners, and the petitioners had not objected to his functioning as the MD for a long time. The court held that a person who is a party to a decision cannot later seek to impugn the decision as being illegal or void in a petition under Sections 397/398 of the Act.Reliefs Granted:1. The allotment of 150 million shares to IOC was upheld.2. The transfer of 155 million shares by WBIDC to the petitioners at Rs. 10 per share was confirmed.3. WBIDC/GoWB was directed to transfer 520 million shares held by them in HPL to the petitioners.4. The price payable for the 520 million shares would be the fair price determined by an independent valuer or Rs. 28.80 per share, whichever is higher.5. The petitioners were directed to purchase the 271 million preference shares held by GoWB/WBIDC at par.6. The petitioners were to pay a sum of Rs. 125 crores to WBIDC towards the balance consideration for the 155 million shares by 28th February 2007.7. The petitioners were to lodge an irrevocable bank guarantee in favor of WBIDC for Rs. 50 crores and a comfort letter for Rs. 1500 crores by 28th February 2007.8. The consideration for the 520 million shares was to be paid within 45 days of the date of the valuation report or within 60 days if GoWB/WBIDC did not desire valuation.9. Upon receipt of the consideration, WBIDC/GoWB was to transfer the 520 million shares to the petitioners.10. The petitioners were to comply with all stipulations in the CDR package in relation to the shares.11. There was to be a lock-in period of 3 years for all shares.12. The composition of the Board was to remain unchanged until the petitioners acquired the 520 million shares, after which they could change the composition subject to certain conditions.13. If the petitioners failed to pay the consideration and acquire the shares within the stipulated period, WBIDC was at liberty to encash the bank guarantee and had the option to purchase the shares held by the petitioners at Rs. 28.80 per share or the fair price determined by the valuer, whichever was higher.14. Liberty was given to apply in case of any difficulty in implementing the terms.