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TMI Blog2013 (4) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... be more specific, according to them the disputes which were before the Board were purely private disputes between shareholders. They did not involve any act of the company or of mismanagement or oppression of shareholders or a body of them. They also wanted, in the alternative, vacation of the status quo order passed by the Company Law Board on 24th March, 2009. The status quo order was with regard to the share capital, shareholding, composition of the board and fixed assets of the company Murlidhar Ratanlal Exports Ltd. (MREL). GROUNDS: There were several grounds urged to seek this order. First, comes the point of maintainability. In the application (C.A. No. 366 of 2011) before the Company Law Board by the first Respondent, they pleaded as follows in paragraph 35: "35. The subject matter of the main 397 petition is also beyond the scope of the proceedings under Section 397 and 398 of the Companies Act, 1956. Issues raised in the said petition cannot be decided in exercise of powers under Sections 397 and 398 of the Companies Act, 1956. This Hon'ble Board does not have jurisdiction to entertain the said petition. For this purpose the petitioners crave leave to refer to Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008. The company was advised to apprise the bank regarding this. Incidentally, this letter was written prior to the said order of the Company Law Board. Another letter was written by the same bank on 12th March, 2011. It stated that: "the total net worth of the Company as on 31.03.2010 was Rs.24.50 crore and unsecured borrowing was Rs.30.58 crore as against investment in Fixed Assets of Rs.70.91 crore and outside investment of Rs.8.21 crore which implies negative Net Working Capital. You are therefore advised to bring adequate fresh equity to improve the position. Please also note that the current ratio of the Company is at a lower side and fresh infusion of capital is required to improve the ratio." Yet another was written by the bank to the company on 2nd February, 2012 to the following effect: "This is further to our letter bearing no. IBB:KOL:ADV:2010-11dated 12.03.2011. By the said letter, we had advised you to bring adequate fresh capital to improve the debt equity ratio of your company. Almost one year has passed but your have not infused any fresh capital in the company. Our Bank is concerned and you are requested to bring in fresh capital and give us a status report on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company controlled by three brothers, Ajay, Bijay and Sanjay. Bijay claimed that at the starting point, the control of the Company was equally shared by these three brothers and each of whom had roughly the same percentage of shares in the Company. Hence, it was a family Company. Bijay like the brothers had an equitable right and a legitimate expectation to participate in the affairs of the company. This arose out of the underlying obligations and understanding on which the company was formed and run like an quasi partnership. Learned Counsel for the petitioners relied on Ebrahimi V Westbourne Galleries Ltd. and Others reported in (1972) 2 ALL ER 492, Needle Industries (India) Ltd. Vs. Needle Industries Newey (India) Holding Ltd. reported in AIR 1981 SC 1298 and Sangramsinh P. Gaekwad Vs. Shantadevi P. Gaekwad reported in (2005) 11 SCC 314 (paragraphs 225, 227, 230 and 231), O Neil's Case 1992 All ER 961 and Prabir Kumar Misra Vs. Ramani Ramaswaay & Ors. (2010) 154 Company Cases 658 (Mad) to support this argument. The allegation is that Bijay trusted his brothers. The brothers had defrauded him. Shares have been transferred out of his or his family members' account, as a result of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons who control or want control of the company, regarding shares, management, and so on. It may be the case of wrongdoers acting through the Company. It may also well be that the wrongdoers are the Company for all practical practices. It may well turn out to be a purely private dispute. Therefore, the question of maintainability is also be decided along with the merits of the disputes between the parties, in accordance with any existing order of court in this behalf or in any manner thought fit by the Company Law Board. I order accordingly. Now, the rights issue. The Company proposes to raise about Rs.10 crores by rights issue. It was said that with the inflow of this capital the company would be able to overcome its interest debt of Rs.3 crores and substantial interest payment liability per year to lenders. Furthermore, by this exercise the credit rating made by CRISIL would turn positive from negative. It was pleaded in paragraph 20 of the stay petition in connection with this appeal that the Board meeting of the Company was held on 22nd March, 2012. A resolution was proposed for raising the share capital by issuing 47,68,750 equity shares of Rs.10 each at a premium of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ebrahimi V Westbourne Galleries Ltd. and Others reported in (1972) 2 ALL ER 492 followed in Needle Industries (India) Ltd. Vs. Needle Industries Newey (India) Holding Ltd. reported in AIR 1981 SC 1298 para 44 to 52 and Sangramsinh P. Gaekwad Vs. Shantadevi P. Gaekwad reported in (2005) 11 SCC 314 (paragraphs 225,227,230,231). In fact at this stage it is to be assumed that the platform of this family Company resting on a pivot is to be kept in equilibrium. This platform is kept in equilibrium by recognition of rights, obligations, expectations of every family member who constitutes a small family company which resembles a partnership, as recognised in the above case and in O Neil's Case and in the Madras decision (Supra) following it. Therefore, permission is granted to the first respondent to go ahead with the rights issue. However, Bijay and his group have to be offered rights shares as if their claim for 9,66,638 shares was true, subject to the results of the Company Law Board petition. Furthermore, Bijay and his group will be able to exercise the option of provisionally taking the rights shares without making any payment for them, for the time being. The rights shares will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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