TaxTMI 
TaxTMI 
2009 (1) TMI 841
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....ompany prior to the impugned allotments. Shri R, Murari, learned counsel for the petitioner appraised the brief facts which led to filing of the present petition. The company was originally promoted by Shri S. Kishore and K. A. Sastry, respondents Nos. 2 and 3 herein. The issued, subscribed and paid up equity capital of the company as on March 31, 2001, stood at Rs. 2,000 being the shares subscribed to by the subscribers to the memorandum of association of the company. While the matter stood thus, a comprehensive scheme of amalgamation was proposed amongst eight companies whereby, seven companies, which included M/s. Upanishadic Management Council Private Limited in which the petitioner was a shareholder, were amalgamated into the respondent-company and in consideration of the amalgamation, the shareholders of the seven transferor companies were issued equity shares in the transferee company and seven transferor companies stood dissolved pursuant to an order dated July 3, 2002, passed by the hon'ble High Court of Andhra Pradesh. The details of the seven transferor companies have been given in the paragraph 2 of the petition, which are extracted hereunder: (a) Upanishadic ....
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.... From the tabular column it could be seen that the petitioner holds 1,00,000 equity shares, which comes to 12.11 per cent. Learned counsel further submitted that at the time of consideration of the scheme of arrangement for amalgamation, the petitioner had provided a sum of Rs. 65,00,000 to M/s. Upanishadic Management Council Private Limited as a share application money. Similarly, there was share application money provided by others. However, respondents Nos. 2 and 3 informed the petitioner that there was no provision for allotment of any shares against these money and there was no such contract for allotment of such shares. While so, the share application money was refunded to the petitioner during the period from March to August 2002 and the petitioner did not insist for allotment of shares, since the High Court did not provide allotment of shares against the pending share application money in the transferor company. Respondents Nos. 2 and 3 approached the petitioner for subscription to the equity capital in the month of November, 2002 representing that the company is seeking subscription from all the shareholders....
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....shares to the existing members and outsiders during the period from November, 2002 to February, 2003. The petitioner learned that the company has made two allotments of fresh shares, the first was on November 9, 2002 for 5,44,000 equity shares and the second was on February 27, 2003, for 3,16,920 equity shares. It was during this period the petitioner had paid an amount of Rs. 115 lakhs as share application money, but the money was returned to the petitioner on the ground that the company had not allotted any fresh shares though the share application money was pending with the company during that period. In September, 2006 the petitioner met respondent No. 2 and confronted him with the details and expressed his unhappiness about the allotment of shares, thereby, the economic interest of the petitioner has been seriously eroded. Respondent No. 2 has admitted the allotment of shares made in November, 2002 and February, 2003 without following the procedure. As stated supra the first allotment was made at par, (and the certified copy of Form No. 2, filed with the Registrar of Companies with respect to the said allotment is marked as annexure 3) and the said allotment was made only to r....
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....the tabular column shows the percentage of the petitioner's shareholding pattern is at 12.11 per cent, before and 5.92 per cent. after the impugned allotments. The interest of the company and also the other minority shareholders has been greatly prejudiced and that the minority shareholders are being oppressed by the above two impugned allotments. The impugned allotments have to be set aside on the points made out and can be easily discerned from the following: I. the petitioner had subscribed for the shares by paying the share application money, when the impugned allotment was made in November, 2002; II. the board of directors of the company was aware that the petitioner was keen to subscribe to the shares ; III. the allotments were not made nor offered to the existing shareholders in proportion to their shareholding ; IV. the board of directors was aware of the fact that the equity shares of the company commanded a higher value than the par value at which they were first allotted on November 9, 2002, whereas the second allotment was made on February 27, 2003, at a premium of Rs. 290 per share ; V. the allotments were made with a sole motive of increasing the sh....
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....e directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by them to the shareholders of the company. Therefore, even though section 81 of the Companies Act, which contains certain requirements in the matter of issue of further share capital by a company, does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued". Learned counsel also relied on paragraph 26 of the judgment to show (page 181): "On the question of fresh share capital, it was held to be illegal to issue shares to only one shareholder. This was held to be a violation of common law right of every shareholder. Common law recognised a pre-emptive right of a shareholder to participate in further issue of share, However, in India, in view of section 81 of the Companies Act, such a right cannot be found for sure. However, the test to be applied in such cases which requires the court to examine as to whether the shares were issued bona fide and for the benefit of the company, would import such considerations in case of private limited companies under the Indi....
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....panies. After this allotment the paid up capital of the company increased to Rs. 82,57,860 divided into 8,25,786 equity shares of Rs. 10 each fully paid up. Further, the company has increased the paid up capital on November 9, 2002, to meet certain requirements thereby allotted 5,44,974 equity shares to respondents Nos. 2, 3 and 4 herein. Further, on February 27, 2003, the company made allotment of 3,16,920 equity shares of Rs. 10 each fully paid up at a premium of Rs. 240 per share and the allotment was made to third parties. The board of directors of the company at the time of incorporation constituted respondents Nos. 2 and 3, i.e., S/Shri S. Kishore and K. A. Sastry were on the board on April 6, 1998. Shri H. Kiran, respondent No. 4 herein was inducted into the board on July 26, 2001. However, respondent No. 4 exited from the company as director on November 8, 2007 and ceased to have any interest in the company and in the group. Thereafter, respondents Nos. 2 and 3 continued to be the directors of the company. Learned counsel further submitted that the consideration for the allotment of shares made in November, 2002 and February, 2003 has been received in the transferor compani....
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.... Law Board in Dinesh Sharma.v Vardaan Agrotech P. Ltd. [2007] 135 Comp Cas 133. Accordingly, the maintainability issue is answered in favour of the petitioner. The second issue in relation to the further allotment of shares is concerned, it is on record and evidenced from the pleadings that the petitioner paid an amount of Rs. 115 lakhs as share application money during the period when the allotment of shares have taken place. Though the money was returned by the company to the petitioner later, it was done during the period the impugned allotment of shares were made. The company and the respondents have not denied this aspect. Further, the petitioner had categorically stated how the allotment is bad in law. On perusal of the documents, the first allotment was made on November 9, 2002, allotting 5,44,974 equity shares to respondents Nos. 2, 3 and 4 herein and Form No. 2 dated November 17, 2003, was filed with the Registrar of Companies on November 18, 2003. The second allotment was made on February 27, 2003, allotting 3,16,920 equity shares to respondents Nos. 5 to 8 herein and Form No. 2 dated February 27, 2003, was filed with the Registrar of Companies on December 4, 2003. From t....