2022 (7) TMI 204 - AT - Companies Law

Oppression and Mismanagement - Issue of Right Shares - subsequent Rights Issue during the pendency of 1st Rights Issue - gross under-subscription of the rights issue - non-participation in the Legitimate 1st Rights Issue - additional loans/funds being sanctioned by the SBI and PNB Bank being suppressed from this Hon ble Appellate Tribunal Hon ble NCLT and shareholders - mismatch in the dates of valuation report of 2nd rights issue and purported email - details regarding status of disbursement of loan debt equity ratio defaults shortfalls etc. not given to the Hon ble NCLAT Hon ble NCLT and shareholders - withholding of vital documents/annexures by the Appellant - section 241 and 242 of Companies Act - Increase of Share Capital - HELD THAT - Section 62 of the Companies Act 2013 relates to an increase of Share Capital of course within the Authorised Capital. In reality it is aimed to include a matter where the Directors determined to increase the Capital by issuing further Shares within the Authorised Limit as per the decision of the Hon ble Supreme Court in Nanalal Zaver And Another vs Bombay Life Assurance Co. Ltd. and others 1950 (5) TMI 15 - SUPREME COURT . Aim of Section 62 - HELD THAT - The purpose of Section 62 of the Companies Act 2013 is to increase the Capital for the needs of the Company the proportionate allotment is coincidental to increase of Subscribed Capital. The Articles of Association of a Company generally / ordinarily specify in the Regulation about the aspect of Rights Issue. As a matter of fact Section 62 of the Companies Act 2013 embodies in Statutory Form the rudimentary notions as among the Shareholders inter se and governing them with power to allot Shares - It is for the Directors to determine how may Shares and of what Value they will issue the Shares. The enhancement of Capital is purely a matter of an internal Administration of the Company and the Courts do not interfere in such matter in normal course. In terms of the ingredients of Section 62 of the Companies Act 2013 the Directors have to offer further Shares issued to the Shareholders who are on the Register of Companies and not to anyone else and in fact the Offer must be in the same proportion to all the Shareholders. It is to be remembered that there shall be no discrimination among them. Rights Issue Principle - HELD THAT - If the increase of Capital was found to be necessary for genuine business purpose the company as per Section 62 of the Companies Act 2013 could raise further Capital from public. Member Shareholder and Holder of Shares - HELD THAT - The word Member Shareholder and Holder of Shares are employed in the Companies Act 2013 in same sense meaning; persons holding Shares in a company and registered as such in the Register of Members of the company - An Issue of Shares on Rights basis cannot ordinarily be subject of a complaint as an act of Oppression. In the decision of Hon ble Supreme Court in Worldwide Agencies (P) Ltd. V Margarat T. Debor (Mrs.) 1989 (12) TMI 245 - SUPREME COURT it is observed and held that in some situation and contingencies the Member may be Holder of Shares but a Holder may not be a Member. Principles of Natural Justice - HELD THAT - Undoubtedly the Principles of Natural Justice are not the edicts of a Statute. An absence of ascribing reasons will give a person a sense of feeling of injustice whether it is before an Administrative / Judicial / Quasi-Judicial Forum which passes it in the considered opinion of this Appellate Tribunal. This Tribunal keeping in mind of the fact that the Company Petition No. 98/CTB/2019 was filed in terms of Section 241 242 read with other provisions of the Companies Act 2013 among other things averring oppressive and mismanagement acts purportedly committed by the Respondents therein and considering the observation made by the National Company Law Tribunal Cuttack Bench in the impugned order in C.A. No. 45/CB/2021 dated 23.03.2022 that when the Rs. 1st Rights Issue was pending the subsequent Rights Issue during the pendency of the Application comes very much within the ambit of this Application and when the Tribunal by the impugned order in C.A. No. 45/CB/2021 in C.P. No. 98/CTB/2019 had restrained the Respondents therein from going ahead with the present Rights Issue in progress or any further Rights Issue till the disposal of the Application and C.P. No. 98/CTB/2019 etc. being an interim order this Tribunal without expressing any opinion one way or the other on the merits of the matter in pending C.P. No. 98/CTB/2019 on the file of the Tribunal and also not delving deep into the same exercising its prudent sound discretion in a subjective manner is not inclined to interfere with the impugned order dated 23.03.2022 in C.A. No. 45/CB/2021 in C.P. No. 98/CTB/2019. Appeal dismissed.

Summary

Issues Involved:
1. Legality of the Rights Issue.
2. Alleged suppression of documents by the Appellant.
3. Jurisdiction and authority of the Tribunal.
4. Alleged malafide intent and conspiracy by the majority shareholders.
5. Compliance with Section 62 of the Companies Act, 2013.
6. Impact on the company's financial obligations and potential NPA status.
7. Interim relief and status quo orders by the Tribunal.
8. Natural justice and procedural fairness.

Issue-wise Detailed Analysis:

1. Legality of the Rights Issue:
The Tribunal observed that despite the previous Rights Issue being grossly undersubscribed, the Respondent No.1 initiated another Rights Issue, which was deemed illogical and undesirable, especially since the matter was sub-judice. The Tribunal highlighted the company's substantial reserves and surplus, questioning the necessity of the new Rights Issue. The Tribunal restrained the Respondents from proceeding with the current Rights Issue or any further Rights Issues until the disposal of the application and the main petition.

2. Alleged Suppression of Documents by the Appellant:
The Respondents No. 1 to 3 contended that the Appellant suppressed pivotal documents related to the second Rights Issue, including emails, valuation reports, and board meeting minutes. The Tribunal noted that the Appellant failed to provide justifiable reasons for this suppression, which was critical for the case's adjudication.

3. Jurisdiction and Authority of the Tribunal:
The Appellant argued that the Tribunal exceeded its jurisdiction by issuing orders beyond the reliefs prayed for by the 1st Respondent. However, the Tribunal maintained that it had the authority to scrutinize the legality of the Rights Issues and issue necessary orders to ensure justice and equity.

4. Alleged Malafide Intent and Conspiracy by the Majority Shareholders:
The Respondents No. 1 to 3 alleged that the Rights Issues were pre-planned conspiracies by the majority shareholders to dilute their shareholding. They highlighted discrepancies in the timing of valuation reports and emails from the bank, suggesting malafide intent. The Tribunal acknowledged these concerns and emphasized the need for a thorough examination of the allegations.

5. Compliance with Section 62 of the Companies Act, 2013:
The Appellant claimed compliance with Section 62, which governs the issuance of further shares on a rights basis. The Tribunal, however, questioned the necessity and timing of the Rights Issues, especially given the company's existing reserves and the pending litigation. The Tribunal emphasized the importance of ensuring that the Rights Issues were conducted in the company's best interest and not to the detriment of minority shareholders.

6. Impact on the Company's Financial Obligations and Potential NPA Status:
The Appellant argued that the Rights Issues were necessary to meet the bank's requirements and avoid the company's account being marked as a Non-Performing Asset (NPA). The Respondents No. 1 to 3 countered that there was no evidence of default or shortfall necessitating the Rights Issues. The Tribunal noted that the bank's emails did not conclusively indicate an imminent NPA status, and the necessity of the Rights Issues remained questionable.

7. Interim Relief and Status Quo Orders by the Tribunal:
The Tribunal issued an interim order restraining the Respondents from proceeding with the current Rights Issue or any further Rights Issues until the disposal of the application and the main petition. The Tribunal also ordered the maintenance of the status quo regarding the existing shareholders and their shareholding.

8. Natural Justice and Procedural Fairness:
The Appellant argued that the Tribunal's order lacked detailed reasoning and failed to address their objections. The Tribunal, however, maintained that the interim order was necessary to prevent potential prejudice and ensure a fair adjudication of the main petition. The Tribunal emphasized the importance of procedural fairness and directed the expeditious hearing and disposal of the main petition.

Conclusion:
The Tribunal dismissed the Company Appeal (AT) No. 50 of 2022, upholding the interim order restraining the Rights Issues and maintaining the status quo. The Tribunal directed the National Company Law Tribunal, Cuttack Bench, to complete the hearing of the main petition and pass final orders within a specified timeframe. The connected interim applications were also closed.